Seemingly in response to the external doubts over Fed policy, Bernanke felt the need to write an editorial in the Washington Post to further clarify his thought process just one day after their FOMC meeting. He is encapsulating in one sentence the mantra of the Greenspan/Bernanke Fed, “Easier financial conditions will promote economic growth.” The unfortunate evidence however over the last 10 yr’s says otherwise and that all it promotes are booms and busts. Since his Aug 27th speech, the Fed has been successful in lifting asset prices as we’ve all seen but he’s also succeeded in lifting inflation about the exact same amount. Since Aug 26th, the S&P 500 is up 14.4% but the CRB index is up 15.5%. An example, the person next door just got a 5% pay raise, great news but his cost of living just went up by 5% too. Thus he/she is no better off. This is the fallacy of the wealth effect goal of the Fed if inflation is an equal byproduct.

Category: MacroNotes

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3 Responses to “Bernanke pens more of his thoughts”

  1. Estragon says:

    Raising inflation expectations (specifically, to 2%) is exactly what both the fed action yesterday and BB’s WaPo editorial are designed to do. This is not a side-effect or byproduct. It’s clearly the goal.

  2. You decide if Jim Rogers is right:

    “All [Ben Bernanke] understands is printing money….His whole intellectual career has been based on the study of printing money. Give the guy a printing press, he’s going to run it as fast as he can.”

    How did it come to this? How could it be possible for someone steeped in the history of finance and economics to simply repeat mistakes having clear historical precedent…?

    Nations have come and gone, but currency depreciation to fool the masses have been used since Nero’s debasing of the denarius to feed the imperial Roman army, the German Weimar Republic’s attempt to print its way out of debt to stave off communism, and of course more recently and less discussed, the Latin American inflations of the 1980s.

    Since moving off the gold standard in 1971, the U.S. dollar has lost over 80% of its purchasing power. (The BLS has an interesting calculator for this here BLS Inflation Calculator). The U.S. dollar is about to lose quite a lot more purchasing power…

    The Bottom Line: The Chairman is now, in part, targeting the stock price movements when making its decision of when and how much debt to monetize (ie, money to print) because he is the leader of the only Federal goverment agency supposidly able to act (see the surprising op-ed below)…

    Invest – or – more accurately, protect whatever monetary assets you may have.

    http://alaricinvestments.blogspot.com/2010/11/if-you-only-have-hammer-everything.html

  3. JackWayne says:

    Although inflation serves to devalue the dollar, isn’t there an additional devaluation taking place here? So your person next door is actually a net loser due to QE2?