FedUpUSA

Bernanke You Ignorant Slut

 

This afternoon Bernanke strode to the lectern and delivered a speech including this ditty:

But today I want to focus on a role that is particularly identified with the Federal Reserve–the making of monetary policy. The goals of monetary policy–maximum employment and price stability–are given to us by the Congress.

Notice those bolded words — price stability.

These goals mean, basically, that we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable.

There is the lie; you just witnessed Ben Bernanke take words from a Statute — an actual law — and lie through his teeth about what they say.

This is the actual language in The Federal Reserve Act:

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

STABLE means unchanging.  It does not mean the rate of increase in consumer prices (is) low and stable” — it means the target rate of change in consumer prices is zero.

This is the “Grand Lie” told by Bernanke, by Greenspan and by those who came before them.  It is an active and intentional act of law-breaking by every single member of the FOMC and has been serially since 1913!

Congress could change the law.  It could specify that inflation should be “low and stable.”  But Congress said no such thing.  Congress mandated stable prices, not “slowly-increasing” prices.

And let’s not kid ourselves as to the actual impact of such a policy.  The so-called “2%” inflation rate that is allegedly “low and stable” sounds like it’s a pretty harmless thing.  After all, how can 2% hurt you?

Well, over 100 years, what does 2% inflation turn a $100 item into?  If you said $100 + ($2 (2% of $100) * 100), or $300, you’re wrong.  Because an inflation rate is an exponential function that item will cost $710.26 100 years down the road.

In point of fact, however, the actual inflation rate has been approximately 3%, not 2%.  That doesn’t sound like such a bad “miss”, does it?

Well that same $100 item under a 3% inflation rate costs $1,865.89 100 years hence.

Do you still think this theft of saved funds is “no big deal” when in fact all you’re left with of that $100 100 years hence in terms of purchasing power is about $5.36?

I believe that the original Coinage Act’s provisions (passed in 1792), which proscribed death for intentional debasement of the currency, is the correct sanction for such treachery.

But despite the fact that there is currently no penalty clause of any sort in The Federal Reserve Act does not change the essential character of what Ben Bernanke and the FOMC are doing.

They are intentionally violating the law.

Now let’s talk about the other essential claim that Bernanke made today:

In normal circumstances, the Federal Reserve implements monetary policy through its influence on short-term interest rates, which in turn affect other interest rates and asset prices.1 Generally, if economic weakness is the primary concern, the Fed acts to reduce interest rates, which supports the economy by inducing businesses to invest more in new capital goods and by leading households to spend more on houses, autos, and other goods and services. Likewise, if the economy is overheating, the Fed can raise interest rates to help cool total demand and constrain inflationary pressures.

How does lowering interest rates “lead households to spend more on houses, autos and other goods and services”?

Lowering interest rates doesn’t make your wages go up, so you can’t spend more from your earned income.

No, it leads you to spend more by borrowing more money.

But borrowing to consume is in general foolish.

To begin with the more money you have chasing goods and services the more they cost!  This is economics 101, and applies to everything.  Take a look at college costs over the last 30 years if you don’t believe me and explain how Calculus has changed in that 30 years, and why it should cost five times (in inflation-adjusted dollars) as much to learn it today in college as it did in 1982.  There is only one reason this happened — too many dollars chasing too few goods and services.

As a result borrowing to consume is self-defeating as you wind up driving the price higher, which then leaves you in a position where you have to borrow even more!

That would be bad enough if it was the only thing that screws you when you engage in this behavior.

But it’s not.

In fact, there are two other problems which are at least as serious and combined are much more-so.

The first is that when you buy a good or service today instead of tomorrow you inherently overpay for it compared to tomorrow’s price.  This is due to the fact that human ingenuity continually improves productivity.  Consider the lowly handheld calculator.  If you want one today they’re $3 at WalMart.  How much did they cost 30 or 40 years ago?

This is admittedly an extreme example, but far-less extreme examples abound.  A DVD player was $500 just a few years ago.  A couple of years later they were $100.  Now they can be had if you shop carefully for under $50.  Your desire to have it “right now” meant you paid more and got less.  This is perfectly fine provided you can afford to pay for the item with your current economic surplus (savings or current wages) but if you borrowed to own it then you overpaid twice — once because you drove up the price by chasing the goods and then again because you failed to take advantage of waiting for productivity improvements to lower the cost — and thus price.

Most people do understand this cost and accept it in the name of vanity, keeping up with the Joneses or whatever.  But it is the other cost — that is, interest — that is truly insidious.

See, when a loan is made even if the law is followed (and it is not) and actual capital is lent out that was previously acquired (and it is not) the interest that you are going to have to pay in the future does not exist in the economy.

Get this straight folks — it doesn’t exist.

Now you can look at this situation in isolation — as “just you” — and shrug.

And you might get away with that.

For a while.

But 2008 showed us what happens when too many people shrug for too long.  When too many people borrow to spend now rather than spend what they can afford with current production and save some percentage of their income back to form capital eventually you hit the wall because the interest that was never created to pay the debts doesn’t exist, and eventually someone raises their hand and says “this is a Ponzi scheme — credit must expand exponentially for everyone to be able to pay, which means it won’t — and can’t — go on forever.  I quit — give me my money NOW!”

The music stops and there are not enough chairs.

What government and The Fed have done since is not a solution.  It was and is a scam. It is an attempt to sell you on the premise that the bad debts that were taken on and left people without chairs can continue to exist and be serviced by the government running huge budget deficits.

This is a lie and it is trivially provable that it is a lie.

If the economy has 10,000 units of production and 10,000 units of credit and currency in it, and the government emits another 1,000 units of credit and currency nothing has changed other than the fact that each unit of production now requires more credit or currency to buy than it did before!

This is exactly identical mathematically to the government increasing taxes by the precise same amount without telling you it has done so! 

In fact, the government can and has lied to you and told you it has and is cutting taxes while in fact it has raised them!

But what happens when you raise taxes in this fashion?  The cost of employing people goes up and the number of employed people goes down.

And what has happened?

Exactly that.

Now how do you increase government funding and thus maintain the deficit spending if you can’t put people back to work?

You can’t.

The premise that Bernanke, Bush and Obama all operated on is that by spending in deficit they could con you into restarting the exponential borrowing charade.  Four years on we now know this strategy has failed; there are simply not enough qualified and willing borrowers in the economy to take on yet another exponential load of debt ($54 trillion, approximately, this time around) to run another “cycle” of this Ponzi scheme.

But if we keep this charade up for too long, since we have now centered the gross increase in borrowings in the Federal Government, and hit that wall, the government collapses.

That is what we now face, and the only question is how far we are away from disintegration of our society, government, economy and mass unemployment.

Bernanke said much else in his speech today, but these are the only two items that matter.  The rest was nothing more than arm-waving, and I’m quite sure he hopes you didn’t catch his dissembling right up front — if anyone did, it certainly wasn’t evident in the questions that were asked.

Wake up America.

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