In Monday’s New York Times there is an op-ed piece by the GREATEST CENTRAL BANKER, Paul Volcker. It seems that the man who was shuffled aside by the Obama administration found a rather curious time to question the Bernanke Jackson Hole speech. (Especially since Obama and his economic team used Volcker to establish its “street cred” and then disposed of his giant stature by turning him into “AN INVISIBLE MAN.”)
The invisibility gave way to reemergence of the man in a stinging piece in the NYT a day before a significant FOMC meeting. Volcker warns Bernanke that “at a time when foreign countries own trillions of our dollars, when we are dependent on borrowing more abroad, and when the world counts on the dollar’s maintaining its purchasing power, taking on the risks of deliberately promoting inflation would be simply irresponsible.”
If Bernanke bends to the Rogoff and others view that an inflation rate of 4%-6% would help alleviate the U.S. debt crisis the FED will be making a huge mistake. When Mr. Volcker was Fed chairman in the early 1980s, it was rumored that he viewed GOLD PRICES as his enemy for GOLD at elevated levels was indicative of the FED‘s failure. Juxtaposing the Bernanke Fed versus the Volcker Fed can be measured by the behavior by the price of GOLD.
Yes, I know that using 1980 as a baseline means that the real price of GOLD has not reached its previous high–rubbish. Gold is the barometer that the international monetary system is badly frayed and in need of responsible guardianship. The shadow cast by a monetary policy giant with practical experience will loom over this week’s two-day FED meeting.
Tags: Bernanke, Fed, FOMC, Gold, New York Times, Paul Volcker
September 19, 2011 at 9:57 pm |
It’s not just foreigners who hold U.S. dollars. Savers in this country are being hurt by zero interest rates and inflation. These people count on a dollar maintaining its purchasing power.
September 20, 2011 at 1:31 am |
Yra,
It is widely understood now the real objective of any economic policy now MUST be to DESTROY EXCESSIVE CAPITAL (savings, per Keynesians). Higher inflation is the MONETARISTS’ response to that end.
Are there any other viable /politically feasible solutions under consideration? Because, if not, FOMC HAS NO CHOICE.
September 20, 2011 at 7:46 am |
I would sure love someone to actually explain to me how inflation targeting accomplishes anything productive – with some degree of precision and honesty. It makes sense in theory assuming that the consumer/workers receive a good deal of wage inflation…but with median incomes falling and hours worked falling…what exactly does higher inflation accomplish? It seems higher inflation, in the context of flat or falling income growth, would reduce demand for consumer products? Maybe I am wrong…but it sure seems like the preconceived assumption is that earnings will be inflated allowing for more tax revenue’s and what not….but what if the quantity of sales actually falls because income is flat or down and people can’t afford whatever is in question? What then? All that is accomplished will have been accomplished is an additional screwing of the middle class with a more expensive cost of living for the things they need let alone the things they want.
September 20, 2011 at 7:48 am |
*Correction: All that will have been accomplished is an additional…
September 20, 2011 at 9:53 am |
USIKPA—read the Carmen Reinhart and Belen Sbrancisa paper on financial repression titled liquidation of Governement debt.From the abstract:”financial repression includes direted lending to government by captive domestic audiences,explicit or implicit caps on interest rates,regulation of cross-border capital movements…financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation.”
September 20, 2011 at 9:55 am |
Danny –everything you say is spot on—the middle class is getting squeezed and it is showing in the consumer numbers.Plus with private sector unions having zero bargaining power the FED has become their line of defense by taking up the jobs issue and its dual mandate–or so it seems
September 21, 2011 at 5:12 am |
Yra, thank you for the source