Thursday, March 13, 2008

Why Bernanke Is Inflating So Much

Bloomberg columnist Mark Gilbert provides an interesting review of Ben Bernanke's infamous 2002 speech which earned him the nickname "Helicopter Bernanke" because of his "we'll stop at nothing to prevent deflation"-attitude and direct reference to Milton Friedman's "money helicopter".

In it, we see the explanation for Bernanke's behavior. This man is obsessed with the thought of stopping deflation which he views as an imminent threat, despite all the signals of soaring inflation. Indeed, his obsession with this is likely what causes him to ignore the increase in inflation. In it he notes that there are quite a lot of unorthodox policy instruments which would allow the Fed to stop deflation and notes how the 1933 devaluation of the dollar ended deflation in America.

"Deflationists" like Mike Shedlock overlook not only the current inflationary monetary- and price trends because of their incorrect money supply definition, but also overlook the obsession that Bernanke have with literally doing whatever it takes, including monetizing the national debt , to stop deflation if deflationary monetary trends were to appear. The deflation of the great depression and in Japan had its origin in an inability (due to the current gold standard, which although watered down compared to the real thing was still a real policy restraint) and unwillingness to use unorthodox policy measures. Once such was used, as in America 1933 when the gold standard was ended, deflation ended too.


Blogger Flavian said...

It is obvious that Bernanke is as wrong as you can be on just about everything, suffering from severe deflation paranoia.

However, these nonsensical ideas are supported by nearly all academic "economists" in Sweden, the UK and the US and for that reason I think the best way to substantiate that they are completely mistaken is to allow them to run their nonsensical policies until the dollar gets compeletely worthless.

I even suspect that what we see now is the beginning of a severe breakdown of the US dollar and a creaping, spontaneous remonetization of gold.

Never mind.

9:24 PM  

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