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Monday, October 24, 2005

surprise, surprise: bush picks a moron for fed chief

Bush went ahead and did the expected, stupid thing by nominating Ben "Inflation Fighter" Bernanke as the next Fed chief. Here are some choice quotes from Bernanke's infamous speech entitled Inflation: Making Sure "It" Doesn't Happen Here, delivered on November 21, 2002:
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.
At least Alan Greenspan would every now and then pretend to believe in hard money, and he did write a decent article about gold and economic freedom, even if it was 38 years ago. If Bernake gets confirmed for the post, and he probably will given the stupidity and spinelessness of the U.S. Senate, we'll have the perfect figurehead at the top of Fed to represent a U.S. economic and financial policy that has completely abandoned any hint of reality. Reality won't be denied, of course, and it's only a matter of time before it comes crashing down on the U.S. dollar.


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