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Bernanke as Mr. Bush's Nominee About printing press in Bernanke's World... "The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal. What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior). Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system--for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation." -- Dr. Benjamin Bernanke, from this linked speech -- which I call the Jet Helicopters with Printing Presses on Board Speech, Bernanke. The
Bible According to Bernanke Yeah, I waited a while to post any comments on Bernanke as the new candidate to replace the Green Man at the central bank. Did you know that a central bank is one of the main tenets of the Communist Manifesto? -- Well it is! Bernanke was my Numero Uno at the Kennel Klub choice to be the Top Dog at the Fed three years ago... I think he will be just as good at smoke, mirrors, obfuscation, and being murky as mud in FED$PEAK-EASE as Easy Al, Everyone's Pal. Gimme that Ole Time Religion and a spiked punch bowl with 200 proof grain alcohol! Woooooooooooooooooooo! That's Goooooood!!!!!!!! Anytime you can print money out of thin air, the value of the stuff in your wallet decreases, because it takes more of the stuff to chase fewer goods and services. That's inflation. And, that is exactly what the FED was created to do. Let's get rid of the thing! -- and go back to specie [gold and silver backed] money! Inflation targeting is nothing but smoke and mirrors to keep the fraud of the FED hidden from folks that don't know much about money, banking, and how money is created out of thin air under the Mandrake Mechanism to begin with. Since 1913 when this private central bank was created, it has destroyed about 95% of the purchasing power of the 1913 Buck, which at the time was a real Constitutional US Dollar at 371.25 grains of fine silver based on the weight of precious metal in the coin [same weight as the Spanish Piece of Eight]. That's right folks -- our money used to be valued in the weight of the precious metal it contained. Now we have clad coins with no precious metal in them at all. Real estate could actually profit by a specie backed money system, instead of being a pivot point and support for the paper money system. It is funny that at the time of Ben's printing press speech he noted that gold was selling at $300 Bucks an ounce at the time of the speech. Hummmm..... gold is significantly higher today if you check www.kitco.com. A little over $470 and change today. In the article linked above by Congressman Paul we quote: Perhaps the Federal Reserve can stave off the day of reckoning by purchasing the GSEs' debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary and painful market corrections will only deepen the inevitable fall. The more people are invested in the market, the greater the effects across the economy when the bubble bursts. Did you know that the FED buys a goodly chunk of GSE paper? Earlier in Congressman Paul's article, he lays it out how real estate supports the paper money system: One of the major privileges the federal government grants to the GSEs is a line of credit from the United States Treasury. According to some estimates, the line of credit may be worth over two billion dollars. GSEs also benefit from an explicit grant of legal authority given to the Federal Reserve to purchase the debt of the GSEs. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors. The FED GSE money pump uses real estate in my view to keep the financial house of wax together. Of course, this is a rigged casino, and you cannot bet against the house and win. With all the talk about re-regulating the GSEs and putting them under the Treasury or the FED's supervision, this is like the fox guarding the hen house, ain't it? Neither our legal tender fiat paper money or our real estate is backed by anything of any real intrinsic value...except debt... that is unless your real estate is unencumbered by a mortgage. One of the properties of wax, is that given the proper amount of heat, it will melt, and unless contained, will run all over the place. When that happens, it is kind of messy to clean up, even with a printing press in your jet helicopter.
Ole Bear, Editor © 2005 Realty Reality |
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