Asia Times: Weimar model for Bernanke

[marmar]

Weimar model for Bernanke
By Martin Hutchinson


At the Federal Open Market Committee meeting last week, policy remained unchanged, and the accompanying statement made the extraordinary claim that "measures of underlying inflation continue to be somewhat low, relative to levels that the committee judges to be consistent, over the longer run, with its dual mandate".

The following day, the March Producer Price Index showed prices rising at 1.6% per month, equivalent to a rate of 21% per annum. Echoes of the German Weimar Republic inflation are getting louder, as do the chances for Federal Reserve chairman Ben Bernanke to turn into Reichsbank chairman Rudolf von Havenstein.

Von Havenstein took great pride in his work, bragging repeatedly about the Reichsbank's success in gearing up physical note production to meet soaring market demand. Rather than practice or urge monetary restraint, he regarded the explosion of physical banknote production as a triumph of German efficiency. Such was the need for speed, in the fall of 1923 when prices were doubling every three days, he was forced to resort to airplanes to get the currency to the more distant economic centers. All he lacked was Ben Bernanke's helicopter. ..........(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/MC23Dj02.html

[bossy22]

1. is the author living in a bubble?

most of the recent inflation is due to soaring gas prices- which bernanke has had little control over. Core inflation (which excludes volatile prices such as energy) is still low.

[AtheistCrusader]

2. This is true. Most people don't understand how many gallons of gas it takes to produce 10lbs of beef

for instance.

[Taitertots]

3. More hysteria and non-sense

Weimer republic failed because the amount they printed was orders of magnitude greater as a percent of available currency. We would need to print tens of trillions of dollars a year to cause Weimer level hyperinflation.

[ixion]

4. give us time... we're printing money every day

and at our current burn rate, it shouldn't take too much longer. It is HARDLY 'hysteria and nonsense'.

[Taitertots]

5. At our current burn rate we will never reach Weimar levels

We would have to print several sextillion dollars before we would even get close to Weimar levels.

It is absolutely hysteria and non-sense. The relative percent increases prove that we are not even close to Weimar level money printing. Not to mention the absence of high inflation years after QE1.

[ixion]

6. I'm curious how you track the money supply

since they stopped publishing the M3 in the Bush years, and have continued this practice in the Obama years.

[Taitertots]

7. I was going by percent change in MB and M0, not the wider money supply

Sextillion was more an exaggeration than an exact figure. Germany printed way more than one million percent of their M1. We have printed nothing close to this. Many of the other factors which influence how the monetary base effect the money supply have not changed in ways which would cause inflation, if anything there is deflationary pressure. We simply are not printing new currency at a rate that will cause high inflation.


M3 has been discredited as an economic indicator. Is there any specific reason that you think large, non-liquid, long term assets should be considered in the money supply?

[ixion]

8. The M3 reported on more than that, and it's cessation was curious

To Wit:

Finally he notes, in response to all of those who are paranoid and scared that the Federal Reserve has suspiciously chosen to not ever again publish M3, the broadest measure of the money supply, that "Thanks to the folks at nowandfutures.com, it appears that we can still look at the rate of money creation by the Federal Reserve even after they have stopped publishing their own numbers. Their data sources are M2, Institutional Money Market and two weekly reports from the Fed - H.8 and H.4.1. Is it any surprise that they don't want to show that the annualized rate of money creation is now over 9%? That's right. A half a trillion dollars created out of thin air in the past six months."

A 9% increase in M3! Yow! Yow yow yow! And to make sure you comprehend the catastrophic enormity of this, he adds, helpfully, "Remember, M3 is borrowed money." So debt went up by 9%? Yow yow yow!

http://www.safehaven.com/article/5093/e-economic-newsletter

So my being concerned about the cessation of this report does not seem at all ill-founded or misplaced.

[Taitertots]

9. 3% or 9% is modest, during a huge recession is it really enough?

America is not even close to having hyperinflation. Excessively restrictive money growth during deflationary pressures can be worse than modest inflation.

We should be less concerned that they are increasing now and more concerned that they weren't decreasing it leading up to the crisis. Qualitative easing and low interest rates are a good idea today. They should have been restricting slowly while the economy was out of control.

[ixion]

10. "Qualitative easing" a.k.a. printing money is not really a good idea, in my opinion,

and as far as the 9% increase goes, I'm in the Richard Daughty camp, that it wasn't at all 'modest', and things are not-at-all well.

[Taitertots]

11. Do you have any specific reason to oppose qualitative easing?

It has yet to produce high inflation and it has been long enough to have felt any lagged effects. Not to mention that it is being done by other nations with similar lack of negative effects.

Things are not well. There is little causal relationship between our economic problems and Qualitative easing. If anything, during extreme deflationary pressures we should be wondering if it is enough. Qualitative easing certainly didn't cause our economic problems and it is having a positive net effect on the economy.

Are you opposed to any monetary growth, or just monetary growth to counter economic distress? What do you think the monetary growth targets should be?

[ixion]

12. Am I opposed to monetary growth? Of course not. Is Qualitative Easing 'growth'? Not in my opinion

because all you're doing is printing and/or borrowing more money, which isn't growth. So-called 'growth' is organic. It is not a constant, and it does not always move forward. There are expansions and contractions, and what we're in need of now, again, in my opinion, is a return to real market value. Real market value is not what we have now. What we have now is the result of roughly 30 years of Wall St. gaming the stock market via speculation, shady investment vehicles (CDO's, CDS's and so on), and voodoo economics.

If the US were sitting on massive reserves of capital, I would have no problem with release more cash into the market (although I believe it's effects only help large corps, not so much the working folks), but as it is, we don't have said reserves, so we're just printing more money 'cause we can. It's a basic macro-economic tenant that the more cash you have in the marketplace, the more devalued the currency becomes (because it's more diluted), so while this 'easing' may make the banks happy, it's long term effect is to increase our debt, which is bad. I AM opposed to increasing debt, because I believe we spend too much on the military, MIC and related verticals, and that if our government managed it's money better, we wouldn't have to borrow.

Again, that is not the case.

As for 'targets', I believe this is an artificial concept that doesn't really apply to a truly organic economy, and I'm sure you'll disagree with that. ;)

[Taitertots]

13. Ok, now we are getting somewhere

First I need to address the basic macro economic tenants that you are incorrectly interpreting. The more cash you have in the market place is not the sole determinant in price levels. After the crash the country was experiencing strong deflationary pressures due to crashing consumer demand. Easing isn't causing high inflation because it is countering strong deflationary pressures. When inflationary pressures return, the Fed will sell the bonds it bought at a huge profit and prevent inflation.

As for the banks: They don't want inflation. Inflation favors people who are in debt, not lenders.

"If the US were sitting on massive reserves of capital"
We are. Massive corporations in the US hold trillions of dollars on reserve. Easing converts their long term non-liquid assets into cash, pumping liquidity into the market to prevent financial collapse. It certainly does benefit working people by preventing a total breakdown in the economic system.

"As for 'targets', I believe this is an artificial concept that doesn't really apply to a truly organic economy, and I'm sure you'll disagree with that"
If the current monetary growth rate is too high, what do you support doing? We are already low single digits. Do you support causing deflation?

The only problem that the government has is managing it's income stream. Tax the wealthy and stop going to war, our money problems will disappear.

[Dr. Righteous]

15. Some food for thought

Easing won't cause high inflation while there are deflationary pressures because nobody is willing to borrow money right now. But once those deflationary pressures begin to wane, then investors will feel confident enough to borrow outside of their means, just as what happened when the last inflationary bubble started. We will begin to see massive price inflation that could only have happened due to the excessive capital the banking system has available thanks to the Federal Reserve.

Unfortunately, you are incorrect in saying that banks do not want inflation. While it is true that inflation favors people who are in debt and harms lenders, that is only because the lender is using his own capital, generated from his labor, to make the loan. Banks do not use their own capital, they simply are able to create money out of thin air, lend it, and collect interest on it. It doesn't matter that they are collecting interest at below the market inflation rate because they are creating the inflation in the first place: they are automatically making profit, assuming the borrower doesn't default. But if the borrower defaults, the bank loses nothing because the money they lent him didn't exist in the first place.

Having the Federal Reserve not do anything would not be the cause of deflation. The cause of a deflationary contraction is the inevitable consequence of the economic bubble, created from too much inflation and low interest rates, popping. Taxing the wealthy and stopping going to war is not going to solve our money problems (though it would help). Technically, income taxes are unncessary under a fiat currency system because the Federal Reserve (being on hook as the lender of last resort) will purchase as many treasury bonds as necessary to fund the federal government forever. I agree that we need to stop going to war, but that has not changed with this Administration and is certainly not going to change in the future while the money-making machine is able to fund perpetual war. Fiat currency is inherently unstable and the tool of tyrants, we must make the move to sound money before our money problems will go away.

Indeed we will see hyperinflation in the coming years if we don't reverse this current unsustainable trend.

[pscot]

14. Weimar inflation looked perfectly normal

Until it didn't

[Taitertots]

17. Things were normal until they started doing abnormal things

Like doubling the amount of currency in a few months. We are several orders of magnitude off that money creation rate.

[roamer65]

16. The hyperinflation of a reserve currency.

This is going to be fun to watch.
:evilgrin:

[OllieLotte]

18. The Fed likes to tout the inflation numbers.

The claim is that inflation is low. Inferring that people are not being harmed by higher prices. The reality is that some people have the worst of both worlds due to the Fed. An reasonable example would be a person that was semi-retired that owned their own home. They have a modest amount in the bank, which is why they work part time, hoping to make it stretch.

Their healthcare, food and energy costs have jumped considerably which would have a real impact. His home has fallen in value. They receive virtually nothing from the bank for there investment in CDs. They haven't seen a raise in four years.

The Fed claims that inflation is low, so "no harm, no foul". I would say that due to all of the manipulation by the Fed that this person is far worse of than if we had run away inflation. If we were having inflation similar to the 70's - their home would be worth more, CD's would be earning a reasonable return and they would be receiving a yearly raise.

[Dr. Righteous]

19. CPI is misleading

Indeed, the CPI does not include "volatile" prices such as food and energy, but these are the most fundamental things which folks spend their dollars on! A price index which does not factor these in cannot possibly accurately represent inflation. The price of gold is the most accurate measurement of inflation. The FED does not want people to reach these conclusions, they want people to continue to believe their lies.