Wednesday, April 18, 2012

Ben Bernanke on Friday 13th

Turns out Friday the 13th was a big day this year.

First: the government moved to  choke off the booming US natural gas market, with the Orwellian-named, “Supporting Safe and Responsible Development of Unconventional Domestic Natural Gas Resources” executive order (h/t RegT).  The rule is designed to add lots of overhead costs by adding oversight from at least a dozen departments and agencies of the fed.gov hydra.  Keeping costs high will help Obama maintain his policy to make energy prices "necessarily skyrocket".

Second: Federal Reserve Chairman Ben Bernanke ("The Bernank") gave a memorable talk on the topic of "Rethinking Finance" - and the Fed definitely needs to rethink what they're doing.  The speech is entitled, "Some Reflections on the Crisis and the Policy Response", and the whole, mind-numblingly boring collection of Fed Doublespeak is here.  It leaves you with the impression that Bernanke and all the central bankers live in a different world than we do. 

Gary North, financial commentator at Lew Rockwell, posts a pretty witty fisking of the speech, "Ben Bernanke's Judy Garland Impersonation". Let's start here:
He [Bernanke] ended his speech with this:
The financial crisis of 2007-09 was difficult to anticipate for two reasons: First, financial panics, being to a significant extent self-fulfilling crises of confidence, are inherently difficult to foresee.
This is wrong on two counts. First, in a free market, there are no self-fulfilling prophecies. That is because of the widespread distribution of knowledge. A self-fulfilling prophecy is said to take place because lots of people expect it to happen. But why would lots of people expect it to happen? Because (1) there is something fundamental taking place and (2) people share the same economic theory.
Self-fulfilling crises?  How could that happen?  That's saying markets don't work.  But seriously, Ben, just about everyone knew there was a housing bubble; you'd have to be an intellectual or central banker to not see something so obvious.  And bubbles depend on monetary policy to inflate them.
FIAT MONEY PRODUCES BAD INFORMATION
Ludwig von Mises asked this question: Why do so many entrepreneurs make the same mistakes at the same time? His answer: there must have been misinformation conveyed to almost all market participants. But how? Because of central bank tampering with the money supply. Money is the common commodity. It conveys information to most participants. To find why people make the same mistakes at the same time, he said, look at monetary policy of the central bank and fractional reserve commercial banks.
The whole thing is worth reading.  Just the dated quotes of Bernanke saying completely wrong things are worth your time. 

They way I see things, Bernanke has been on a Public Relations push to keep the "end the Fed" folks from gaining an upper hand and forcing him to resort to open attacks ("You wouldn't like me when I'm angry").  And I think from a historical standpoint, if when the economy goes south, guys like Ben might end up on light poles.  It wouldn't be the first time.  The problem is, when they try to convince you nobody knew the '08 collapse was coming, that's a bad lie.  Too many people know it was predicted, and a lot of Austrian economists predicted it; here's a nice partial listing.
Last week, Pimco's El-Erian threatened to deplete their supply of adjectives based on "sustainable" when he said,
"In the last three plus years, central banks have had little choice but to do the unsustainable in order to sustain the unsustainable until others do the sustainable to restore sustainability!"
The short version of this is that the banks are running against marginal utility limits.  They've created so much worthless "money" that each new unit has even less value than the one before it.  It's becoming worth less of the worthless money.  This can only go on so long.  It's going to end, and it's not going to be pretty. 
Somewhere over the rainbow
Way up high,
There's a land that I heard of
Once in a lullaby.

Somewhere over the rainbow
Skies are blue,
And the dreams that you dare to dream
Really do come true.

Someday I'll wish upon a star
And wake up where the clouds are far
Behind me.
Where troubles melt like lemon drops
Away above the chimney tops
That's where you'll find me.

Somewhere over the rainbow
Bluebirds fly.
Birds fly over the rainbow.
Why then, oh why can't I?

If happy little bluebirds fly
Beyond the rainbow
Why, oh why can't I?

7 comments:

drjim said...

Yep, it was predicted by a lot of smart people. Unfortunately, our state controlled media kept it well hidden.
Just like the housing bubble....the banks *knew* loaning money to people was a BAD idea, but then they figured out how to bundle all the bad loans with some good ones (hey, housing never goes down, does it?), and foist it off on unsuspecting institutional buyers.
And thanks to Dodd-Frank, the banks got a walk on the whole stinky pile of festering SHIT they pawned off on other people.
Yep, I think a LOT of people in D.C. belong up on light poles....

drjim said...

Meant to say "Loaning money to people who they knew couldn't pay it back was a BAD idea....

Quizikle said...

It isn't new - but the players aren't the same

Re: Second Bank of the United States from Wiki

As President, [Andrew] Jackson worked to rescind the bank's federal charter.In Jackson's veto message, the bank needed to be abolished because:

It concentrated the nation's financial strength in a single institution,
It exposed the government to control by foreign interests,
It served mainly to make the rich richer,
It exercised too much control over members of Congress,
It favored northeastern states over southern and western states,
Banks are controlled by a few select families.

Following Jefferson, Jackson supported an "agricultural republic" and felt the Bank improved the fortunes of an "elite circle" of commercial and industrial entrepreneurs at the expense of farmers and laborers. After a titanic struggle, Jackson succeeded in destroying the Bank by vetoing its 1832 re-charter by Congress and by withdrawing U.S. funds in 1833.

Q

Graybeard said...

Yeah. I know the bankers were hounded by ACORN and others like them, but if they had a spine and said no, maybe this wouldn't have happened. Or fed.gov would have jailed them.

Graybeard said...

Absolutely. The saddest thing about this whole fiat currency collapse is that "this has all happened before and it will all happen again", as the Battlestar Galactica folks said.

It doesn't have to be this way.

From the Romans debasing their currency to the tulip bubble to Zimbabwe, fiat currencies collapse as the bubbles get bigger and bigger until there's no other possible outcome.

RegT said...

A friend sent me a visual joke about what denomination bill to put Obama's face on. It started with Washington, moved down to Ben Franklin, and ended up with a food stamp with Obama's face on it.

Knowing Obama, he'd be happier with his face on a one trillion dollar bill, as was produced in Zimbabwe. Especially since it would indicate the end of any value to our currency.

AM said...

Any time debt can be bought and sold it will eventually become a shell game of worthlessness that leaves some poor sucker holding the short end of the stick when the money stops. The short end of the stick comes from the British Talley Stick, which had its own bubble....