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Do Fed Officials Read Fed Publications? They Should!

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It is mindboggling to consider the amount of newly printed money Washington has dumped into our economy in the last ten months or so. The Federal Reserve, Treasury, and the Congress have poured in over $9 trillion worth of stimulus, loans, stock purchases, and loan guarantee money. That figure represents about two-thirds of our GDP. However last night, Treasury Secretary Tim Geithner indicated in an interview on Bloomberg that what has been done so far is “too little too late”. Thus he proposed a new $2 trillion big bank bailout plan. The plan coupled with Obama’s stimulus bill will saturate the market with an addition $3 trillion. The new printing of dollars will bring the total to $12 trillion — if this doesn’t stabilize home prices, increase lending, and create four million jobs then I don’t know what will.

The President doesn’t seem convinced that all this spending will work. Speaking in Ft. Myers, Florida, on Tuesday, he stated his belief that his winning a second term in office could depend on whether he can turn the country’s economy around. The President stated, “If stuff hasn’t worked, if people don’t feel like I’ve led the country in the right direction then you’ll have a new president”. If history is any guide then chances are likely we will have a new president in 2013.

At the Federal Reserve Bank of Minneapolis, from 2000 to 2007, Timothy Kehoe, Edward Prescott and a team of 24 economists from around the world studied economic depressions that happened in the Twentieth Century. Instead of focusing on what caused each severe downturn, their study examined government’s reaction to the downturn and the consequences thereof.

First, they looked at the economic experiences of Chile and Mexico in the 1980s. Both countries suffered from falling international prices for the commodity they exported – copper for Chile and oil for Mexico. This in turn exposed a weakness in each country’s banking sector. In 1982, Chile took control of its banks; it liquidated the insolvent ones and reprivatized the solvent ones. It set up a new regulatory structure which allowed the market to dictate interest rates and allocation of credit to business. The immediate effect was severe pain, but by 1984 the Chilean economy began to grow and is still the fastest growing in Latin America.

Conversely, Mexico pursued policies which nationalized banks, provided credit at below-market interest rates to some large firms and no credit to others, and provided massive fiscal stimulus schemes to grow employment. Even though both nations arrived at the same place for the same reasons, it was   how each nation’s government dealt with the crisis that determined their economic futures. Since 1982, Chile has experienced significant GDP growth while Mexico has languished with a negligible GDP growth increase.

The researchers also looked at Japan and Finland in the 1990s. Both countries experienced economic downturns in the early part of that decade. Japan pursued similar policies to Mexico’s in the previous decade – massive fiscal stimulus, propping up of insolvent banks, and discriminatory credit allowances. Japan’s economy is still stagnant to this day.

Finland’s response was more like Chile’s. Its government paid the price of reform and let the market decide the allotment of credit to the private sector. The Finnish economy has experienced robust growth since.

From their seven year study, Kehoe and Prescott have concluded that bad government policies cause depressions. Specifically, they are convinced that it is the “overreaction” by government which “prolongs” and “deepens” economic downturns. Based on their research, they believe unproductive firms should be liquidated, including banks and auto makers. Bailouts which prop up unproductive firms do nothing but “depress productivity” further because they take labor and capital away from productive enterprises that would use them more effectively. Lastly, they have more faith in markets than the government to make better decisions when it comes to resource allocation.

Their findings have been published in the book Great Depressions of the Twentieth Century, published in 2007 by the Federal Reserve Bank of Minneapolis. The big question is, have Geithner (former chair of the New York Federal Reserve) and Bernanke (current chair of the Federal Reserve Bank) read it? How can there be such a disconnect between the Fed’s own publication and Geithner and Bernanke’s words and actions? History does repeat itself. Perhaps if Geithner and Bernanke in 2007 had read the wise analysis of their colleagues, we wouldn’t be repeating history and well on our way to the next great depression. Kehoe and Prescott would have to agree that $12 trillion is a hell of an overreaction by government. Thus, we should expect the mother of all depressions.

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About Kenn Jacobine

  • Jesus CHRIST, Kenn. Sorry for shouting. This is about the most important thing I’ve read online in a year. That this report should exist and be published by the Fed and be so totally ignored is an outrage that just blows my mind. I knew this stimulus and bailout business was a bad idea, but to have it confirmed so clearly with historical models from a source within the system like this is just maddening.

    Great work digging this up. I’m going to promote the hell out of your article.


  • Compelling article. I dugg it.

  • Clavos

    Well done, Kenn. Puts the whole “stimulus” idea into a new (and very worrisome) light.

    It’s mind-boggling that the administration is rushing pell-mell to spend so much money with little or no consideration of the consequences; I’ve been very concerned about the inflationary potential of this boondoggle, but you’ve exposed a much scarier scenario.

  • The scariest part is the gross incompetence or blatant malfeasance in having this information available and not even considering it. These are not the people you want running your economy.


  • Glenn Contrarian

    Kenn –

    It’s not often I’d agree with Dave, Clavos, and el Bicho, but you wrote a heck of an article…well said and well-researched. I’m not sure how to effectively refute what you posted. I’m not even sure that I can – but since articles that contain little or no arguable controversy breed little debate on BC or other forums, I see it as my duty to BC to refute you as best I can. So there!

    Off the top of my head, the only obvious refutation would be from the American government’s response to the Great Depression. Dave will argue otherwise, but the statistics show that by the end of 1936, by every economic measure the Depression was over, with the sole exception of unemployment which was then only slightly higher than it is right now (when measured by the same statistical method used then). We can therefore state with confidence that it was FDR’s government stimulus and increased regulation that got us out of it.

    In 1937, we went into a significant recession which lasted until we ramped up our industrial base for WWII – which was (for the purposes of this discussion) another example of government spending that improved our economy.

    Most interesting of all is what I found in this article, which shows that we’ve basically repeated history. Here’s a quote from the article:

    “At first, [Hoover’s Reconstruction Finance Corporation (RFC)] only lent money, leaving distressed banks with further obligations. Had it bought stock, the RFC would instead have put the banks a bit farther from disaster. But even after this problem became clear, Hoover did not want the RFC to buy bank stock — that was socialism. Only with the Emergency Banking Act of 1933, suggested to Congress by Roosevelt and passed within hours, could the RFC buy bank equity. Over the next year, the RFC bought more than a billion dollars of bank stock — an amount equal to around a third of the capital invested in U.S. banks.”

    And again, by 1936 our economy was back on track in every measure except for unemployment…which was only slightly higher than it is right now.

    After WWII our national debt was every bit as hideous as it is now – and what did our government do? Truman and Eisenhower bumped the top marginal tax rate up to over 90% and we paid off nearly all of the national debt…and despite the Republican rhetoric about how bad high taxes for the wealthy are, our economy through the fifties and early sixties was the envy of the world.

    There are two weaknesses in my refutation is that your examples are of modern-day economies and mine are from a half-century and more in the past…but I would also say that the general economic principles remain the same.

    I could also say that your examples are of other countries, and mine are of America…to which you could riposte with my point about general economic principles regardless of the country involved. However, the differences in the complexity and the scale of the economies of those countries as compared to America’s may well negate the aforementioned riposte.

    I would summarize by pointing out that since laissez-faire Reaganomics got us into this mess, we should not trust to more of the same to get us out of it. Still, kudos to you for a great article – made me think, rather than simply react as with most other articles. Time for coffee and aspirin….

  • Glenn, you’re showing yourself to be a fair-minded person, almost a rarity on this site. Now, this comment of yours impels me to read Kenn’s article.

  • Kenn Jacobine

    Thanks Fellas,

    You know for the first time on this site I can really feel the love!

  • Clavos

    Don’t let it go to your head, Kenn. We’ll probably nail ya on the next one. :>)

  • Well, Lumpy. Pablo is just very convicted. I don’t think he’s a troll just because he believes in the power grab by the movers and shakers (even if I don’t share his views). If your definition of ideology has to do with having an idee fixe, then perhaps Pablo is an ideologue. But in that case, I can think of ideologues from the Left (no, I’m not going to name them)which are far more disruptive than Pablo or Cobra.

    But can’t the same thing be said of our colleagues
    from the right?

    As to open-mindedness – no, I don’t think it’s a widespread phenomenon.

  • Ma(rk Ede)n

    I think that it’s safe to assume that both Bernanke and Geithner are aware of this research and its gloomy ‘damned if you do — damned if you don’t’ results.

    There is no painless solution to capitalist crises. Perhaps they don’t believe that civil society would stand up to the trauma of an unmitigated correction.

  • But then again, perhaps that trauma is precisely what the country needs in order to wake up.

  • Kenn Jacobine


    This crisis was not caused by capitalism. The U.S. is not even a capitalist society. This crisis was caused by the central planners at the Fed through their bastardization of interest rates and the malinvestments that transpired (i.e. housing). The same thing happened in the 1990s with the dot.com bubble. Now the Fed is pumping money in like there is no tomorrow in an effort to reinflate their bubble – they call it stabilizing prices. Buy gold my friend inflation is on the way.

  • A very odd view, #92. The speculations on Wall Street, abuses and unmitigated greed had nothing to do with it. Only the government was at fault. And then again, the claim that “the U.S. is not a capitalist society.”

    Perhaps not in the pure sense that Mr. Jacobine would have liked to; and I’m very glad for the fact.

    Be that as it may, this just about discredit the writer, in my view.

  • The crisis was caused at least in part by the Fed embracing monetarism and then violating the most fundamental principles of monetarist theory and thereby demonstrating how absolutely correct Milton Friedman was.


  • You can’t be serious, Dave, to so completely absolve Wall Street of any responsibility in the matter – as though the Fed was only acting rather then reacting.

    But in that case, you had better rethink your position as to the objectives of “the central planners,” who are they and what they’re up to. If I remember correctly, you are dead-set against any view which even hints at the possibility of conspiracy and world domination.


  • Kenn Jacobine


    In the first place, the U.S. has what is known as a mixed economy – free market with a large does of government involvement. The following article sums up the extent to which Uncle Scam is involved in our economy: http://lovesliberty.tripod.com/id8.html

    Secondly, the money had to come from some place for the greed to take place – the Fed. And it is funny that the greed you are talking about is in probably the most government regulated industry in the country – banking. As a matter of fact if any other industry was run like our banks the leaders would go to jail for running an illegal cartel. Why is this so hard to understand? The Fed continues to erode your purchasing power and destroy your savings while causing the most recent coming depression and you would prefer to believe the idiot talking heads and the slimy politicians in Washington about how “greed” has destroyed our economy. Talk about mushheaded thinking. This folks is why we have the problems we have today.

  • Well, Kenn. These policies by the Fed didn’t come about overnight. How long was Greenspan, for instance, in charge? So in that case, the conservatives are just as much in fault or the other side. Wasn’t he there, too, even during Reagan.

    So who runs the Fed? And if politicians do – all politicians – then we may as well close the shop. So where are you going with this?

  • Kenn Jacobine


    This is a bipartisan problem. Greenspan was originally appointed by Reagan, but reappointed by Clinton and Bush II. The Congress has abdicated its Constitutional fiduciary responsibility over our money and given it to the Fed. The Fed was proposed by big bankers (JP Morgan, etc..) and exists for big bankers. It cares nothing about you and me as long as we stay calm and not rise up to overthrow the system. I of course favor an abolition of the system and a return to a commodity backed currency. This would limit federal spending, lower inflation, and end the illegal banking cartel which only serves the greedy on Wall Street.

  • Mar(k E)den

    Kenn, let’s bracket the arguments about what/who caused the problem and whether our economy is capitalist. I’m interested in your suggestions to B & G about what to do now. Perhaps a drawn out period of depressed GDP growth is the best result they can come up with.

  • Clavos

    Buy gold my friend hyperinflation is on the way.

    There. Fixed it for ya, Kenn.

  • Kenn,

    Well, at least we do agree on something. And I agree with you in that the government is the enabler. Don’t get me wrong on another matter either – I’m not against capitalism per se; only in cases when it ceases being functional.

    This crisis may yet bring about some good, if it will lead to a thorough restructuring. Meanwhile, the question still persists: why wasn’t there anyone in the position of leadership to break up this – “conspiracy,” should I say. So either they system was simply allowed to become a loose cannon while everyone watched, or the vested interest, in collusion with key government officials, have prevailed.

    What do you think?

  • Kenn Jacobine


    Its not up to B & G to fix the problem – they are the problem. Congress should repeal all bailout money not yet spent. It should immediately move to abolish the Fed and return our currency to the control of We the People (through our elected representatives). Insolvent companies and banks should be allowed to fail. This would be incredibly painful, but within a couple of years the American people would recover and rebuild the world’s strongest economy.

    If we continue the present course I am concerned we will relinquish our #1 standing economically in the world and our standard of living will be much lower because our currency will be in the dumper. Bernanke said to Congress yesterday that when the recovery comes the Fed will have to raise interest rates to combat inflation. First, do we trust the Fed will do that? After all this will hurt banks. Second, how high will those rates have to go to sterilize $12 trillion dollars and counting?

  • Kenn Jacobine


    There have been people saying that we were headed for a fall from way back – Rothbard, Hayek, Hazlitt, Mises – the so called Austrian economists. More recently, Congressman and presidential candidate Ron Paul and his economic advisor Peter Schiff predicted this very crisis. But, of course Paul was marginalized and ridiculed during the primaries by the msm. Paul and Schiff are getting more attention now though -you can view many of their TV interviews on YouTube.

    I simply think Americans don’t like bad news and the politicians are the last to tell them any.

  • I agree. There’s still the question, though, what to do next and what are our options.

  • Mar(k E)den

    I see Kenn. So things will be better come the ever so painful lazy but fair revolution. Do you think that’s a realistic possibility in the short term — politically speaking, that is?

  • Kenn Jacobine

    Of course not. Perhaps democracy is not compatible with free markets. Chile enacted free market measures with a military junta in charge. Problem is that most military juntas are not benevolent.

  • “It should immediately move to abolish the Fed and return our currency to the control of We the People (through our elected representatives). Insolvent companies and banks should be allowed to fail. This would be incredibly painful, but within a couple of years the American people would recover and rebuild the world’s strongest economy.”

    I buy that! But where you’re going to find the political will to follow this radical thinking.
    I think what will happen – the crisis will just worsen until it’s all in ruins. Then we’ll rebuild from the ashes. Not a happy scenario, but not so far-fetched.

  • Kenn,

    You’re understanding, of course, the opposition to your radical suggestions. The vested interests haven’t exactly been rendered helpless and powerless. They still command considerable resources.

  • Kenn Jacobine

    So true, but its nice to dream.

  • Ma(rk Ede)n

    So, we’ve had our flight of fantasy…

  • Ma(rk Ede)n

    (Austrian style)

  • It’s not the Fed which is the problem, it’s the way the power of the Fed has been used. If the Fed were to return to a responsible policy of managing the money supply in accordance with the GDP we’d be on a firm footing for dealing with the current crisis.


  • Kenn Jacobine


    You sound like the late Milton Freedman.

  • Clavos

    Not surprisingly…

  • Cannonshop

    Of course they don’t read their own publications! Geez, Kenn, next you’ll be wondering how people with degrees in business and economics could make the kind of idiot decisions that led to the current recession, the multiple-organ-failures at GM, Ford, and Chrysler, and asking why the folks in charge of a company whose prior record was of “Delivery-Delivery-Delivery” could be sucking so hard with what amounts to a mid-size twin-aisle jetliner that uses mostly-mature technologies in its design (for those not in the know, the 787.)

    Naturally the Fed officials don’t read their own research materials-those are for underlings and to pack dusty, unread sections of the Library, not to serve as advice to men brilliant enough at ass-kissing and schmoozing to get placed in charge of the single post powerful position in the American Economy.

  • Nor, it appears will members of Congress and their staffs have even an opportunity to read the legislation upon which they are expected to vote today. As of 4:00 yesterday afternoon,

    We’re receiving E-mails from Capitol Hill staffers expressing frustration that they can’t get a copy of the stimulus bill agreed to last night at a price of $789 billion. What’s more, staffers are complaining about who does have a copy: K Street lobbyists. E-mails one key Democratic staffer: “K Street has the bill, or chunks of it, already, and the congressional offices don’t

    The party leaders will, however, provide all of the information they need to do as they are expected.

    Leadership aides said that it will work out later today and promised that lawmakers will get time to review the bill before Friday’s vote.

    It is great to see that the gravy train is on the track and about to pull into the station.


  • Cindy D

    #33 — February 12, 2009 @ 15:49PM — Kenn Jacobine


    You sound like the late Milton Freedman.

    You just noticed? 🙂

  • Mar(k E)den

    Hey, Friedman had something for everyone. Thus, while I deplore the amorality of his ‘science’, I prefer his proposed negative income tax for the unemployed (in addition to the EIC) as a way to redistribute money over existing go’ment programs.

    Dave, how would contracting the supply of money to match the shrinking GDP help at this point?

  • Hope and Change?

    Sen. Frank Lautenberg (D-N.J.) predicted on Thursday that none of his Senate colleagues would “have the chance” to read the entire final version of the $790-billion stimulus bill before the bill comes up for a final vote in Congress.

    “No, I don’t think anyone will have the chance to [read the entire bill],” Lautenberg told CNSNews.com.

    Althougn Frank has been in a coma for the past 5 years…he gets reelected by the idiots in NJ! When things go wrong hell just claim he “didnt know!”….

  • Unavailability of the text of the bill will certainly provide a good excuse for not having read it.

    Wouldn’t it be great if the thing could be read and even analyzed before the vote? As things apparently stand, even speed readers would have a hard time reading it in any meaningful sense before the vote.

    Of course, anyone suggesting that the vote be postponed to permit this would be loudly blasted as an obstructionist.


  • M(ark E)den

    Wouldn’t it be great if the thing could be read and even analyzed before the vote?

    Spoken like a true believer. Do you really think that analyzing the bill would change minds and votes? Pardon my guffaw.

  • Do they read their own publications? Sometimes I wonder if they read at all. They certainly don’t read their own legislation. Do they pick up a newspaper? Check into blogs like BC?

    It seems like DC is under a big bubble. They can’t see anything past arm’s reach.

  • Do you really think that analyzing the bill would change minds and votes? Pardon my guffaw. No, I don’t. I expect that they would continue to do just what their party leaders tell them to do, while masquerading as busy and under paid legislators — nobly sacrificing their time and energy to look after the National interest by making speeches at Congressional hearings in order to create short sound bites. They would create no favorable press just by understanding what they are being told to vote for, and there is always the remote hazard that were they to understand they might find it necessary to make waves.

    All of which raises the question, What the Hell do we send them to D.C. for in the first place? Other, of course, than simply to get them out of the State.


  • bliffle

    Good article, Kenn, you’ve exposed 10s of trillions of dollars of committed debt that the bozos in washington don’t even admit to…yet.

    What you’ve uncovered so far is just a corner of the problem. The unsecured debt goes even deeper and goes back for several decades.

    A couple of years ago while spelunking through some Big Time financial reports, I discovered that the net capital value (the Instrinsic Value) of the USA was about $45trillion, but the sum total of all paper debt in the USA was $550trillion (the entire remaining world had about $200trillion in paper debt).

    We were leveraged about 12 to 1. This structure is way too fragile to survive even mild shock. And so we have what we have, as the economy spirals down into collapse.

    Of course our leaders, one and all, are doing exactly the wrong thing, namely, they are looting the $45T that represents Real Intrinsic Value to try to rescue the $550T that represents the Extrinsic Value held mostly by bankers, hedge funds, and major corporations.

    Right now what we see getting cashed in to support pipe dreams of the fantasy economy is homevalues. Our leaders, one and all (lamentably including the new president) are participating and facilitating the looting of the USA. All the TARP money, all the Stimulus money, is going to baks and other undeserving institutions. Not a penny for homeowners.

    Does that sound too harsh? Do you think there MUST be something somewhere to benefit homeowners? There have been fake programs (fitting that our potemkin economy should also contrive potemkin solutions) such as the one that
    congress said would benefit 400,000 homeowners last year, but only 312 people met enough requirements to even file for the grants, and NO grants were given.

    It’s Katrina 2.0, except even bigger.

    I suppose you could say that one good thing about Katrina 2.0 is that it is non-partisan: all the parties and ideologies among our rulers participate unanimously in this fraud and theft. Republicans, democrats even the precious libertarians cling to the fantasy that somber men in black suits are ‘conservative’ and trustworthy and honest, etc.

    In fact we all do it. We all commit little sins, as we ignore the deceits of our favorite politicians and parties, etc. we willingly, even enthusiastically, surrender to the lies. And then we pro-actively deceive and lie on behalf of some politician even when we plainly transgress our own interests and values.

    As time goes by more people will come to see what happened as more of the cover is rolled back from the secrecy and avoidance that has covered the REAL facts of our finances. Keep at it Kenn.

  • Bliffle, while you have some good points, I think you’re mistaken that people are equally culpable here. The Democrats are whole-hog behind this. They’re certainly at fault. Some Republican legislators are with them in the bizarre belief that cutting a few billion from this bill will somehow make it all okay. Plus they were behind the equally ill-advised TARP bill.

    But aside from the idiots in Washington the overwhelming majority of Republicans and I would guess every single Libertarian is dead set against the passage of this bill.

    With polls of the public running 70% in opposition to all or part of the bill that means that not even all Democrats support it, because Democrats make u more than 30% of the population.

    You should see my website. Since I started writing against the bailout my hits have been averaging over 600 a day, and people are PISSED about the stimulus and the complete lack of accountability of our legislators.

    That’s where the real problem is. It’s not the parties or their grassroots members, it’s those who are in office, Democrats most of all, but everyone to some degree. They just don’t seem to get it.

    How they could pass this bill when poll numbers are so heavily against it and they have to know about the report Kenn sites here and the objections of other economists is just beyond me. It’s pure craziness. We ought to vote every single one of them out of office.


  • “congress said would benefit 400,000 homeowners last year, but only 312 people met enough requirements to even file for the grants, and NO grants were given.”

    This is preposterous. Does anyone have a link to Bliffe’s statement (#44)?

  • Come on, Dave! This goes beyond partisan politics – Democrats, Republicans, whatever.

    Don’t be petty now. They’re all equally guilty, case closed. There’s much greater issue at stake here than just finger-pointing, and you know it.

    Be outraged about the right thing for a change, or you will have lost me forever.

    I know you may not give a shit about that, but I do!



  • bliffle

    Dave says: “Bliffle, while you have some good points, I think you’re mistaken that people are equally culpable here.”

    You see, this is where your problem is Dave. You’ll think anything to defend your favorites, and you’ll proclaim any thought to oppose your personal enemies.

    And so you contribute to the coverups, the lies, the distortions. Because you imagine you have a vested interest in some partisan stance.

    The problem is that the Stimulus is a very small part of the problem. In fact, one should put it aside and consider the Really Big issue of the hundreds of trillions of dollars that have been preemptively committed because of decades of misappropriation of funds in American life.

    All this has gone on with the approval of politicians on all sides. But you stubbornly cling to the childish belief that somehow your favorites can be exculpated and your enemies can be successfully convicted. This partisan predisposition disarms you from ever clearly perceiving reality, because you willingly put on the blinders.

  • bliffle

    #46 – roger:

    I probably have the citation and the details around here on one of my computers, but many months ago I foreswore posting citations on BC because the quality of existing citations by various liars on BC was so poor that mine would suffer by association. And my fears were well founded. So I will only declaim my bottomline conclusions.

    BC is declamatory, not illuminating.

    Incidentally, similar funding fiascos occured in Mississippi and Louisiana after Katrina, to the tune of $3billion and $12billion respectively. You can look it up. If you have the interest.

  • Thank you. You know – this is just too big to keep under covers. Kenn has just got to do something to make these facts public
    Democracy Now! is one good site where they’re critical of Obama – just try to look at the issues.

    Naomi Klein, too, is a fearless fighter and she’s got a quite following.

    Are you listening, Kenn? I can’t push your piece. That’s a job you’ve got to do yourself. If I were you, I’d do everything in my power for your article to reach as many people as you can.

    I don’t even want to address the subject of your previous comment, bliffle. If these people don’t know how to be outraged about what they ought to be outraged – and are only capable of engaging in partisan politics – let it be.

  • Cindy

    Roger you may just want to watch this program. I think it looks about right for a real life prediction.

  • Got you, Cindy. Just got on.

  • Cindy


    My trip is booked for the DC protest, no turning back. I’ll write an article about it–maybe. Unless I end up in jail. lol

  • In the latter case, the article would be much better – like Notes from the Underground.

  • This thread is sluggish – doesn’t register responses.

  • Dave, how would contracting the supply of money to match the shrinking GDP help at this point?

    Well, it would be a hell of a lot better than Kenn’s suggestion that we abruptly switch to a gold standard, which would contract the money supply so much that it would lead to hyperdeflation, the consequences of which would be devastating. Or I guess alternatively it could be accomplished by repudiating all money and debt currently in circulation and issuing new currency valued based on gold, which would be equivalent to declaring bankruptcy as a nation.

    However, if we were to slowly constrict the money supply and federal debt at a rate equal to the rate of inflation we could likely have it down to a level which would be supported by the GDP in about 5 years. The benefits of doing this would be huge. It would increase consumer purchasing power and lower the price of imported goods. It would further weaken OPEC and make it difficult for them to raise prices. It would increase demand for US investment and strengthen our banks and institutions.

    And I don’t mind being compared to Milton Friedman.


  • Kenn Jacobine


    The U.S. government is bankrupt – the only thing keeping it afloat is the monetizing of our debt by foreign countries. This won’t last forever.

    I liked Freedman too until I met Rothbard and Co. Monetarism is what we have been doing. Granted Freedman’s version was more conservative. Its like the beer I enjoy – Bud or Bud Light. I like neither and will order a Corona with a twist of lime (how I wish I could get one of those in Zambia). If Milton were alive he would probably support the bailouts and say the Fed must act appropriately at the other end to sterilize the increase in money supply and clip inflation. Do you trust Bernanke to know when the right time is to do that? I don’t and would leave that to the market.

    I don’t have as much a problem with deflation as the talking heads. Deflation is the shrinkage of the money supply. Given that the Fed has eroded 95 percent of the value of the dollar since 1913 we could stand a little deflation. However, I am counting on more of the same so I have bought gold.

  • “the only thing keeping it afloat is the monetizing of our debt by foreign countries. This won’t last forever.”

    I think you’re right there, Kenn.

    Have you given a thought to making your article more accessible – airing it out?

  • Kenn Jacobine

    I’ve got it posted to about 10 sites.

  • Could you name some?

  • Kenn, monetarism is NOT what we have been doing. Monetarism as expressed by Friedman assumed responsible management of the money supply. It ceases to be a viable monetarist system when manipulation of the money supply runs out of control and you get a massive inflation of the amount of debt and currency. At that point monetarism no longer works, so any rational monetarist would not support that kind of policy.

    The nice thing about gradually cutting back on debt and money supply is that it would stabilize the current situation and gradually improve the attractiveness of US debt as an investment, keeping those foreign interests you mention from trying to dump our debt with the resulting devaluation.

    If we let it get that far and they start dumping US debt and that debt becomes devalued it will accelerate the current patterns rapidly, leading to hyperinflation and an economic collapse. An outcome which is made more likely by irrational deficit spending.


  • Ma rk Ed(en)

    If only pigs could fly.

  • bliffle

    Roger thinks it’s ‘preposterous’:

    #46 — Roger

    “congress said would benefit 400,000 homeowners last year, but only 312 people met enough requirements to even file for the grants, and NO grants were given.”

    This is preposterous. Does anyone have a link to Bliffe’s statement (#44)?”

    I happened across my notes; look at these:




    “Preposterous”, eh?

    You guys gotta read better sources and stop reading editorial crap like political press releases and NRO.

    Clean up your acts.

    I’m 72 years old and I won’t be around forever to steer you straight.

  • Clavos

    I’m 72 years old and I won’t be around forever to steer you straight.

    You shouldn’t drop such tempting setups, bliff.

    Lucky for you, I’m in a benevolent mood today.

  • bliffle

    For several decades we have been using ‘monetarism’ to dam up the inflationary effects of irresponsible fiscal policy: too much spending and borrowing. And please note that tax cuts are exactly the same as spending in fiscal affairs.

    But eventually the dam will burst UNLESS one uses the interregnum afforded by (temporary) monetary measures to correct fiscal policy: reduce spending and increase taxes.

    GWB did exactly the wrong thing in 2000-2001 when he cut taxes and increased spending. His actions augmented the poor fiscal policies of the previous 20 years and contributed greatly to our current distress.

    Had we instituted proper fiscal policy during the previous administration the elasticity afforded by monetary policy would have been restored. As it is there is no slack remaining in monetary policy.

  • Kenn Jacobine


    Not to sound Clintonesque, but it depends on what your definition of “responsible management of the money supply” is. Would Greenspan and Bernanke not claim that they have managed and are managing our money supply responsibly? Of course they would, so it makes them no different by definition than Friedman.

    The bottom line for me is that the lifeblood of our economy is controlled by a small elite group of bankers and this is dangerous and has proven especially with the current crisis to be detrimental to individual Americans. The Fed caused this crisis by supplying its member banks with the noose to hang themselves and now it is bailing them out at the expense of all of us.

    Until we get a sound monetary policy which is out of the hands of special interests – banks, politicians, the American people are going to have to accept a lower standard of living and continually living with large amouts of debt.

  • Stick around, Bliffle. This site does need you to bring a sense of sanity to the discourse.
    And thank you for these references. I believe it really shows how all these politicians are in cahoots, and that D-R party-line division is too phoney to even argue about.

  • In light of Kenn’s assertion(s) in #66 – even even partly true – it would seem that bailing out the banks and financial institutions has been the most criminal act yet on books. And both D’s and R’s were more or less solidly behind it. So let’s get with the program, shall we?

  • I think he dropped it out of frustration, Clavos. It takes courage.

  • Bliffle,

    For anything having to do with HUD and collusion of interests between corrupted government officials and unsavory business interests, there’s no better source than Dillon, Read & the Aristocracy of Stock Profits, memoirs by Catherine Austin Fitts, a former Republican, Wall Street insider, and HUD’s undersecretary during Jack Kemp. It makes for fascinating reading

    See also her own website, Solari Real Channel, as well my own weblog for a three-piece series, “The Case for Fraud.”


  • bliffle

    I read some of the articles at Fitts’ website but didn’t take much away other than she encountered some crooks.

    Here’s a very interesting article by George Soros at the HuffPost site. Advocacy, perhaps, and many people disagree with his politics, but the structures he suggests bear investigation.


    At the conclusion he says:

    “This is a condensed, almost shorthand, account of what needs to be done to turn the global economy around. It should give a sense of how difficult a task it is. It remains to be seen whether any of ideas laid out here are adopted as policy. ”

    I have some quibbles about whether a Danish system can be scaled up to markets as diverse and large as the USA, but there may be some sort of federal solution.

  • Thanks, bliffle. Her website is kind of mishmash, but her “Dillon, Read …” series of articles (all 18 of them) is a different story. But you’ll need at least 2-3 hours to get through it.