Fed sets 2% inflation target

Discussion in 'Financial Cents' started by pmbug, Jan 26, 2012.


  1. pmbug

    pmbug Golden Cockroach

    Bernanke Moves Fed Toward More Openness - Bloomberg

    Their measuring stick is flawed (of course):
    More: Bernanke Goes All In | ZeroHedge

    Jim Rickards says inflation targeting is a blank check for QE. It allows the Fed to enagage QE whenever they feel the need (when their CPCE model tells them so) without constraints on when it might end or the need to announce it explicitly to the market:

    Butowsky Says Everyone Should Own Some Utility Stocks - YouTube (embedding disabled)
     
  2. TheEconomist

    TheEconomist Creighton Bluejay Site Supporter+

    John Maynard Keynes, a very important man when it comes to Bernanke, will be outlined here and where he had his beginnings in economic thought. Keynes believed in the power of regulation to provide a balance between debtor countries and creditor countries that would also provide the world with the liquidity it requires.

    How did Keynes believe this was possible? Keynes believed that domestic economic policy must be resolved with international monetary solidity. If this was not to happen, Keynes feared that international trade would become nothing more than a race to see who could export their unemployment the fastest.

    Keynes believed that debtor countries carried the burden of reconciling trade imbalances. To Keynes this did not make sense. If a debtor country is paying a creditor country and the creditor country refuses to spend that income, which is in reality an increased purchasing power, then there is no other choice but to deflate the value of the debtor countries currency. This could possibly lead to world economies enacting monetary policies that reduce money supply, which would be an attempt to control price levels and interest rates.

    Keynes did not believe that a decrease in money supply would be the most effective way to deal with this dilemma. Keynes felt that an international monetary commission should be created that would take actions to increase importation by creditors rather than contraction of imports to these debtor countries. This would require the creation of a single world monetary unit and a capped restriction on the amount creditors would be able to operate in a surplus and debtors in a deficit.
    This is an issue facing every country in the world right now, especially the United States of America. The issue is primarily concerning the balance of trade imbalance with China. In the current state of things China is able to control the liquidity of the debt that they possess from the United States of America. This causes a decrease in the amount of dollars available to spend. If there are less dollars in the market the demand would be artificially driven up and cause an increase in the value of the dollar. This increase would discourage foreign investment because the cost of doing business in the United States of America is relatively higher than elsewhere.

    Also, under the current system in the United States of America, the country is able to rack up debt without exception. This continuous outflow of wealth from one country throws of the balance in the international economy. This should be noted by Ben Bernanke as he moves forward with his second quantitative easing, without any sign of an increase in output in the form of exportation. If this attempt does not stimulate foreign investment, increases in exports, balancing of price levels, or interest rate stability it could simply lead to more US debt.
    If the Keynesian changes are made, and there is a move toward a required balance between creditors and debtors I believe the winners would be the countries that have already been successful in keeping equilibrium within their economies. The losers would be the countries that continue to buy, buy, buy and sell, sell, sell, almost exclusively.

    Keynesian economists would inherently tend to agree with a move towards a centralized regulatory body that provides a perceived stability in the international economy. Ricardian economists would say that the implementation of interest rates and taxation, like that stated in the article, would stifle world business. Neoclassical economists would be more on the side of Ricardian economists and believe that this implementation would not be good. Neoclassical economists would argue supply and demand dictate the prices, outputs, and income distributions.
    I feel that the creation of a single international monetary institution would be a bad idea because it is putting too much power in the hands of one regulatory body. In the long run countries that are debtors will eventually face bankruptcy and default and will have to institute measures to reconcile their debts, and countries that have stockpiled wealth through the exploitation of their resources will run out and be forced to spend that wealth. I am on the side of the Ricardian and Neoclassical economists because of these facts.

    Quite simply we see this happening all over the world. From the fall of the PIIGS in Europe to the massive trade defecate we face in the United States. As far as I can see the ECB and the main players in it are falling into what I would call a Keynesian trap that was when the Euro was created irresponsibly.

    In the USA I believe that Bernankes actions are insuring that what he fears will come true. It is almost a, "If I can insure that we fail in this way before another then I know how to fix it!" situation. Bernanke's goal, it appears, is to make sure that we default by overspending. Couple that with Obama's Cloward/Piven (look it up, will be worth your time) strategy of overburdening the taxpayer, and the Euro Zone crisis, will result in the creation of a single world governing body.

    I could however see the emerging market countries, such as those in Asia and South America, being able to avoid this type of political constraint as their economies are still young enough to forge their own paths.

    This is IMHO, thats all...
     
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