monetarism, more pampering of fat cats by libertarians/conservatives,
to the detriment of humanity
personally i would also add that tax rates on the wealthy are way to
low, and add deregulation and free trade, and combine that with the
looney tune libertarian/conservative theory of monetarism, and you
have a witches brew of booms and busts eventually resulting in a
severe recession, or depression with lots of world wide instability
and extremism.
SATURDAY, APRIL 19, 2008
Brave Words From A Dissenter
Two Fed presidents dissented with the previous rate cut. One of them
was Charles Plosser, president of the Federal Reserve Bank of
Philadelphia. Yesterday, in a speech at Drexel University, he had this
to say about the limits of rate cuts:
The idea that interest-rate cuts can solve any economic ills is a
misleading perception. Not only is that not true, it is a dangerous
misconception and runs the risks of setting up expectations that
monetary policy can achieve objectives it cannot attain.
To ensure the credibility of monetary policy, we should never ask
monetary policy to do more than it can do. Lower rates, for one thing,
cannot solve the problem of bad debts in the mortgage markets. Nor can
they reprice the risks of securities backed by subprime loans.
Mr. Plosser, you just became my Federal Reserve resident hero.
Many think that further rate cuts can and will provide an economic
boost. But with real rates already at minus 1.75% - after the fastest
plunge into negative territory ever - what we are going to get is
plenty of dashed hopes, if the economy does not pull out of its
tailspin very soon.
Data: FRB St. Louis
The real estate bubble was created by Mr. Greenspan's spate of
negative rates. We are now getting a frenzy in commodities from Mr.
Bernanke's negative rates. But unlike previous bubbles that mainly
involved speculators in shares and housing, the current spike in food
and fuel prices is causing hunger and misery across the globe.
In a fiat currency world experiencing resource limitations there are
no more "good" bubbles to blow by using negative rates. Instead, we
are implementing a "beggar thy neighbour" policy by stealth, a version
of the Smoot Hawley Act updated for 21st Century conditions.
A fiat currency regime, where monetary policy reigns supreme, was
appropriate for an expanding world unhindered by resource depletion.
An ever-expanding supply of money fit the Permagrowth model well -
indeed, it was a necessary condition. However, we are now transiting
to a different socio-economic model and the evidence is all around us,
plain for all to see: zooming prices for low value-added necessities.
Why has the price of rice quadrupled? Does it now contain four times
as much technological or knowledge value-added? Of course not. It is
all about scarcity value, a concept we have not experienced in
centuries, outside of war.
If I may spin Mr. Plosser's remarks to another level: We can't buy
Manhattan for a bag of beads any more. There are too many buyers
around and the natives are restless.
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