Sunday, November 21, 2010

There He Goes Again


The image the Federal Reserve wants to present his that of erudite, contemplative men and women carrying out responsible monetary policy. But with the criminal banker bailouts, and the dirty secrets of a indebtedness from cradle to grave business model spilling out onto the table, that fa├žade has been cracked wide open. Into the breach the bankers pour a steady stream of unconscious liberal logic. That logic though unconstrained by reason is beaten loud and constant by a Ph.D.'s hammer on a Nobel tin drum, loud and the constant enough to drown out common sense.

Here comes, Paul Krugman a Nobel laureate in the Keynesian junk science, which has brought the world to the edge of financial destruction, to shrill in the NYT for The Creature from Jekyll Island, and to all you can say is there he goes again. So, here we go again.

What do the government of China, the government of Germany and the Republican Party have in common? They’re all trying to bully the Federal Reserve into calling off its efforts to create jobs. And the motives of all three are highly suspect.
The only motives that are suspect are yours Paul. As you well know, the Fed can only create money out of thin air, not jobs it can only create inflation, which is the only path that it sees out of debt. Now why would China and Germany want for the dollar we paid to them to be worth less than the dollar that they lent us? Paul?

It’s not as if the Fed is doing anything radical. It’s true that the Fed normally conducts monetary policy by buying short-term U.S. government debt, whereas now, under the unhelpful name of “quantitative easing,” it’s buying longer-term debt. (Buying more short-term debt is pointless because the interest rate on that debt is near zero.) But Ben Bernanke, the Fed chairman, had it right when he protested that this is “just monetary policy.” The Fed is trying to reduce interest rates, as it always does when unemployment is high and inflation is low.

The Fed does not and it cannot conduct monetary policy only the free market does that. The Fed engages in currency manipulation, a crime for you or me to do.

And inflation is indeed low.
Statements such as that need no comment, and I will make none.
Core inflation — a measure that excludes volatile food and energy prices, and is widely considered a better gauge of underlying trends than the headline number — is running at just 0.6 percent, the lowest level ever recorded.

Core inflation is a measure which is used exclusively by the government to hide true inflation. If you don't eat, heat your home, travel, have a pulse or a conscience, as the morticians at the Fed, then you can claim that inflation is at just 0.6%. But for those of us who are red-blooded it's much higher than that, and those of us with common sense can tell the difference.
Over the past seven years, the non-core components of the CPI and PPI have increased at about 37%. Inflationary pressures clearly exist in these non-core components. In the past seven years, the non-core components have increased on average 5.3% per year. From an inflation standpoint, this is an extremely aggressive level of inflation. However, most economists on a month-to-month basis discount the increases in the non-core components. That's a mistake longer term. The non-core components are what we depend on for a day to day living. Every month, regardless of economic environment, we need to spend money on food and energy. If the prices of food and energy are increasing aggressively, then our cost of living increases aggressively too.
Meanwhile, how is wage inflation keeping pace with consumer inflation? Paul?

The recent concern is about wages. With a low level of unemployment, wage pressures are at the forefront of the Fed's watch list, at least it seemed so during Greenspan's era. However, wage pressures have been tame compared to the prices of the non-core components. During a time when the non-core components increased by 37%, wages only increased by about 18%.

We have seen this movie before. Uncle Sam borrows the money from the Fed to create the jobs that stimulate the economy, but jobs built on borrowed money don't last. So, the jobs dry up, the money runs out, and now there is more debt to be repaid, than the debt there was to begin with.
But Krugman just won't quit.
So the case for Fed action is overwhelming. In fact, the main concern reasonable people have about the Fed’s plans — a concern that I share — is that they are likely to prove too weak, too ineffective.

What you mean Paul is that the case against the Fed is overwhelming, and it is a certainty that they will prove to be, "too weak, too ineffective". The reason is simple; you cannot borrow yourself out of debt anymore than you can drink yourself sober. The Fed created the bubble with its sloppy currency manipulation and once that bubble is blown, it has to pop.

Paul won't tell you, so I will. The Fed isn't just creating money from thin air to pump into the economy. The Fed is charging us interests on the money that they create from thin air. That $600 billion of QE2, wasn't just sloshed into the economy it was borrowed into it. Do you see why you can't drink yourself sober, finally? Paul? The Fed has already ruined the economy with a tsunami of slush money, it cannot repair it with another tsunami of slush money.

Paul knows all this too, but he just wants a fig leaf for his Fed buddies to hide behind when QE200 finally crashes and burns. Then helicopters Paul and Ben will join chorus with the rest of the Fed and say, "I told you so."

Well no, I just told you so Paul and I'll tell you again. Uncle Sam can no more than borrow himself out of debt than aunt Mildred can. But there you go again.
And about dollar debasement: leaving aside the fact that a weaker dollar actually helps U.S. manufacturing

This may have meant something when there actually was US-manufacturing to help. But Paul isn't interested in helping; he is only interested in finding a rationale for bleeding Uncle Sam to his last red cent, and excuses for his friends at the Fed, when the debt blows up and hyperinflation sets in.

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