Ambrose Evans-Pritchard is almost shrill in his assessment of the choices now being faced by Fed Chief Ben Bernanke – a few vocal Fed hawks and a deficit-wary Congress on one side and, on the other, a slowing economy where the de-flation peril grows everyday.
Federal Reserve chairman Ben Bernanke is waging an epochal battle behind the scenes for control of US monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral.
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Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed’s balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense scepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts.“We’re heading towards a double-dip recession,” said Chris Whalen, a former Fed official and now head of Institutional Risk Analystics. “The party is over from fiscal support. These hard-money men are fighting the last war: they don’t recognise that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again.”
Mr Bernanke has fought off calls from FOMC hawks for moves to drain stimulus by selling some of the Fed’s $1.75 trillion of Treasuries, mortgage securities and agency bonds bought during the crisis. But there is little chance that he can secure their backing for further purchases at this point. “He just has to wait until everybody can see the economy is nearing the abyss,” said one Fed watcher.
Ambrose ends with Societe Generale uber-bear Albert Edward’s take on the current situation that the world is collectively “walking on deflationary quicksand”.
Oh Dear! We’re heading toward another abyss!
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Cheap money got us into this mess, cheap money will get us out!
Exactly. If you accept that the solution to too much easy credit and spending cannot be more of the same, then you must conclude that anyone calling for it is either a dupe or a shill.
I am mostly a Keynesian, and I believe in countercyclical stimulus through direct government spending on poverty relief and public works. These opaque attempts to pump up the Ponzi scheme by taking responsibility for bad investments made by the private sector should not be confused with Keynesianism. This is just plain looting by the ivy league mafia on Wall Street, facilitated by their cronies at the treasury.
i think socialists are misguided but most i’ve met are trying to do the right thing. dude, if a central bank setting interest rate policy (the most important price of all) by inflation targeting isn’t keynesian, what is? the fed exists to backstop the banking system and facilitate the creation of credit from thin air unbacked by real savings. this distorts prices and economic calculation, leading to one bubble after another.
I agree with you albrt that this isn’t the Keynsianism that you’ve come to know and love. However, many critiques I’ve read of Keynesianism are that eventually, we end up right here in this very spot; they seem to paint Keynesianism as an ‘enabler’ or as a ‘gateway drug’.
Whatever the truth may be, the present situation is warping my fragile, little mind.
FWIW – I really liked the “Keynesian Endpoint” characterization by Bill Pesek last week.
albrt,
while I would be against Keynesian stuff in general, you make a great argument that what is going on right is not even that, its looting as you say.
Yeah…lets continue the legal counterfeiting
Keynesianism is an intellectual justification, or cover, for expanding state powers – like Marxism. One of the most misunderstood aspects of the Libertarian view on the diminishment of state powers (from Bastiat):
“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.
We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain. “
I have always wondered what the closest model of a successful libertarian nation? All of the nations I view as libertarian would be unlivable by myself, just too dangerous, dirty, and uneducated. Compare that with the highly socialized countries that dominate any list I have ever seen of “the best countries to live in”. Americans have a bad taste for socialism because they think that what passes for socialism in America is the way it works everywhere. The saying “privatize gains and socialize losses” sums up the American system. In other parts of the socialized world many of these banksters would be in jail right now, or like in Canada the social regulation prevented the banks for taking the bad risk in the first place.
Please print your favorite free-market libertarian country, I would like to know????
I don’t think there are any model Libertarian nations. However, history shows every possible example of how highly socialist nations collapse from within. I don’t know that a nation ever collapsed from being too free. If you like, look at the ones with the strongest private property laws. Probably Switzerland, Hong Kong, Singapore. You don’t need regulation to prevent banks from taking risks. You just need to stop them from doing it with everyone else’s money and prosecute as fraud when they do. Canada has limited but not prevented risk taking through stronger bank regulation. Just because it has not blown up yet doesn’t mean it won’t. People aren’t crops that need to be cultivated. They won’t wither away and die if the government does not provide them with social programs. All that needs to be done is preserve individuals’ rights to liberty and their own property.
If he can, he will. Who’s going to stop him? He’s already been re-appointed. Yes, they vote at those FOMC meetings, but there’s only 1 member that votes against him.