Wednesday, May 27, 2009

End Game

Richard Posner (via Andrew):

A bit of inflation can be a good thing in a depression, because it operates as a tax on cash balances and thus reduces hoarding and stimulates spending. But I am worrying about the inflation that hits after the depression, when the government decides that it can no longer finance the public debt by borrowing, cannot raise taxes, cannot cut spending, and is left with having to debase the currency. I would like to see greater efforts by the Administration and by the economics profession to determine, so far as may be possible to do, the gravity of this danger.

The Administration? It's depending on higher inflation -- as long as it stays "controllable," of course, just like it was supposed to be in the 1970's. And the economics profession? Outside of a handful of media-darling economists who have inextricably linked themselves to either a political party or a market outcome, I'm not sure who has the visibility or the audience that such a debate would demand.

The best way to explore the danger that Posner worries about is for Congress to take public testimony from all current members of the Federal Open Market Committee, with particular attention paid to statements like this. Get them on the record. Since FOMC minutes don't conform to basic corporate or even small-town standards, with the names of participants omitted except for the voting indications, Congressional sunlight is crucial.

There are some encouraging efforts to impose more control and accountability on the Fed, which I believe has become almost a rogue operation (this episode, while relatively minor in the context of everything else, was both outrageous and unsurprising). Some members of Congress deserve credit for their work in this area. More on that soon.


Anonymous KAIMU said...


Do we just now decide to start worrying about currency debasing via inflation? WHat about the "embedded" inflation? In 1939 a lobster dinner was 85 cents at the US SENTAE RESTAURANT in DC ... In 2009 it is $35 here in Hawaii for a lobster dinner! That is a 4200% increase in price!! How long will I have to wait until this "deflation" unwinds so I can eat a lobster dinner for 85 cents?

If one must worry NOW then perhaps this would be the place to start ... FY 2009: $7.785TRIL SPENT IN EIGHT MONTHS AND COUNTING! Go to US TREASURY DAILY STATEMENT on the FMS website.

Is SPENDING still part of budgets in this technologically advanced modern era of ours? Economists?

5/27/2009 6:11 AM  
Anonymous Anonymous said...

CR did you see the Washington Post article on Brooksley Born yesterday in the Style section? I found it interesting and wondered on your opinion.

5/27/2009 9:27 AM  
Blogger rutben said...

"The best way to explore the danger that Posner worries about is for Congress to take public testimony". Public testimony couldn't be any clearer. At July 10th, 2008 HFSC hearing, Bernanke testified to question I prepared for Rep Garrett, NJ re. Fed's balance sheet and its authority to "monetize". Answer: He had sole authority to monetize and in whatever amount he deemed necessary without consulting congress. Immediately after hearing I went to minority counsel and asked what they could do to stop him. Nothing.....per counsel, if bill were introduced to stop him it would get two votes (Paul and Garrett). It is a year later and begs the question, how many votes would it get today?

5/27/2009 2:13 PM  
Anonymous Anonymous said...

@rutben, wow. Well, I'm thinking that Alan Grayson would vote for it...

I'm liking what I've seen from him so far.

- Whammer

5/27/2009 5:13 PM  
Blogger rutben said...

Grayson and Brad Sherman are the two most knowledgeable, articulate and "direct" (I wish I could say forceful or confrontational). There's nothing I would rather see than someone with knowledge take off the kid gloves and confront Bernanke/Geithner (and Paulson...but that is too late) about their total, abject failure to forecast anything correctly and their continual, disembling lies to congress. Eg. I'm not sure anyone has ever asked Bernanke where he gets the authority to purchase equity for taxpayers. I don't think that's covered by "exigency". I haven't read the details of the first like an Enron derivative....maybe it's buried somewhere in the fine print of a footnote. His lending is likewise supposed to be secured only by paper having an explicit gov't guarantee.

5/27/2009 9:33 PM  
Blogger Jimmy the Saint said...

Grayson has introduced a bill to audit the Fed. Sadly, it has gotten a lot of co-sponsors in the form of nutty Republicans. I don't know why Democrats don't want to go near it. They used to be the party of the little guy.

5/28/2009 2:35 AM  
Anonymous inthon said...

Support HR 1207. It's what we need.

5/29/2009 2:07 AM  
Anonymous KAIMU said...


In DC its about POWER and the little guy has none!

All that will happen if the US FED is audted is we will discover the next new House BILL to ELIMINATE THE US FED! HA!!

So on who's watch would that happen? If you answer that question correctly then you might see why none of the DEMS want to go near it!

I can't really see that either party was ever FOR the "little guy"! What "little guy" and his kids ever benefits from massive DEBT?

5/29/2009 8:50 AM  
Anonymous Inthon said...


Great and entertaining as always.

Obama will own this crash since he has allowed the bozos to run the show (Tim, Ben, etc.)

5/31/2009 11:50 PM  
Anonymous Anonymous said...

I don't know how we can ever recover, if we aren't first honest where we stand and stop fudging the numbers. Kevin Phillips refers to it as, "pollyanna creep".

"Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University of Denver, pointed out last September, the subprime lending crisis “can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . . . With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates.” Were mainstream interest rates to jump into the 7 to 9 percent range—which could happen if inflation were to spur new concern—both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope."

Numbers racket:
Why the economy is worse than we knowBy Kevin P. Phillips

6/01/2009 2:01 PM  
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