By Bruce Johnson
15 Dec 2012



One thing is for certain: Bernanke is committed. But so is a one-trick pony. However, is blind commitment to a theory a virtue or a frailty?

The Federal Reserve chairman continues to push the chips out to the center of the table with both hands. He knows that low interest rates create employment. He is certain. Well, pretty certain. There is one complication though. They have not.

In a corporate board room, the discussion might revolve around this question: "What are we missing? That which we believe should work indeed is not working. Should we reassess and revisit our theories?" When it is your money at risk, questions like this arise. When it is not, one apparently becomes married to a theory. Being stubborn with your own money is usually a poor decision. Being stubborn with other people's money merely risks one's reputation and place in financial history.

Bernanke might wonder if this theory of low rates begetting greater employment is indeed effective in today's complicated world. Does it apply to a country that is essentially one massive service economy, in a world where China manufactures and exports our tangible needs, where banks are internationally bound to one another, and where unemployment ranks are swollen by those drawn into our country by a Cadillac safety net of government programs?

The Wall Street Journal on December 13 opined that more stimuli from the Fed are akin to a call for more "cow bell," a reference to an old Saturday Night Live skit. I made that same connection back in an American Thinker blog in September of this year.

Now there are hints that perhaps Bernanke will seek a quiet exit from his chairmanship. To the next Fed chairman he will be saying, "Here is my hand [a near-$3-trillion balance sheet]. There is the bet [the $2.2 trillion above the balance sheet I inherited]. Good luck."

As in physics, and per Newton, for every action, there is an equal and opposite reaction.

So it is with economics. Bernanke's policies are lame and destructive to free markets. Decision-makers and trigger-pullers, the lenders and the investors, are fully aware that these fantasy rates are as fake as wooden coins. Currency values decline; disposable income is taken from the private sector due to the lack of fair return on investment and lending. Return seekers are herded into high-risk, low-return positions. The velocity of money plummets. Government borrows heavily.

The net result is that the once "fair return" on money is now being withheld from the private sector by the federal government via Federal Reserve actions. That money, in effect, remains with the government to be spent and doled out per their immeasurable wisdom. The result is that the most inefficient allocator of capital has more to allocate. The most efficient allocator, the private sector, has less. Roll over, Newton.

Our Federal Reserve is officially charged with promoting maximum employment, stable prices, and maintaining moderate interest rates.

Zitat

---

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.

---

The last item of this statement, "moderate interest rates," seems to be an ignored directive. Moderate interest rates provide a moderate return on investment and a moderate support for the currency. The Federal Reserve's mission statement makes no mention of creating inflation or setting interest rates at what are clearly not moderate levels.

The Fed is on record as seeking a 2.5% inflation rate. This is an outrage and clearly outside the scope and mission statement of the Fed. In a sense, it is in direct conflict. What price stability is there in an inflation rate which doubles prices every 28 years? Bernanke and others seem to believe that they are bound by some mandates but also have the liberty to author their own.

We have witnessed the evolution from what was initially an emergency response into a seemingly permanent condition. The Federal Reserve has become the fourth branch of government -- unelected, unmonitored, and apparently the author of its own mission statement. From a temporary fine-tuning mechanism for banking, this entity has now morphed into the most powerful branch of government, in which academics can wager the wealth of a nation on a pet theory.

On one hand, the nation's financial health and future are at risk. On the other hand, Ben Bernanke's place in financial history is on the table. Hardly an equitable arrangement.

http://www.americanthinker.com/2012/12/b..._the_night.html

I'm sure that this author means well, but is just dancing around the edges. Bernanke isn't confused or just being stubborn about anything. He holds no illusion about zero interest rates creating employment. He knows full well that his policies are destroying the wealth of all but the richest of the rich. He wonders about nothing, certainly nothing regarding what he is doing at the Fed.

And no, the Fed hasn't "become the fourth branch of government." Nor is it "the most powerful branch of government." It never has been part of the "government" in any sense, except of course by the illusions that its name and external "relationships" with the Federal Government slyly portray. It has been from its onset and continues to this day to be a private banking cartel owned and operated by the global elite and the puppets that they have installed to do their dirty work. We need to stop pretending that it is a part of "government" before we can deal with its evil properly.

Quote: FP123 wrote in post #2

---

I'm sure that this author means well, but is just dancing around the edges. Bernanke isn't confused or just being stubborn about anything. He holds no illusion about zero interest rates creating employment. He knows full well that his policies are destroying the wealth of all but the richest of the rich. He wonders about nothing, certainly nothing regarding what he is doing at the Fed.

And no, the Fed hasn't "become the fourth branch of government." Nor is it "the most powerful branch of government." It never has been part of the "government" in any sense, except of course by the illusions that its name and external "relationships" with the Federal Government slyly portray. It has been from its onset and continues to this day to be a private banking cartel owned and operated by the global elite and the puppets that they have installed to do their dirty work. We need to stop pretending that it is a part of "government" before we can deal with its evil properly.

---

Quote: algernonpj wrote in post #3

---

Quote: FP123 wrote in post #2

---

I'm sure that this author means well, but is just dancing around the edges. Bernanke isn't confused or just being stubborn about anything. He holds no illusion about zero interest rates creating employment. He knows full well that his policies are destroying the wealth of all but the richest of the rich. He wonders about nothing, certainly nothing regarding what he is doing at the Fed.

And no, the Fed hasn't "become the fourth branch of government." Nor is it "the most powerful branch of government." It never has been part of the "government" in any sense, except of course by the illusions that its name and external "relationships" with the Federal Government slyly portray. It has been from its onset and continues to this day to be a private banking cartel owned and operated by the global elite and the puppets that they have installed to do their dirty work. We need to stop pretending that it is a part of "government" before we can deal with its evil properly.

---

This is a good no-holds-barred summary of the creature from Jekyll Island.

Isn't it convenient that the Fed measures its success in 'controlling' inflation using a CPI that measures the cost of a declining standard of living from which the cost of life's necessities (food and energy) have been removed.removed

---

Zitat

---

. . .
Absolutely great synopsis of the Jekyll Island book.

alger, is there some place that factors these two 'ingredients' back in so we can have a truer index?

---

Before the links, here's some background:

This goes under:"be careful what you ask for'. There now are three major CPI measures published by the BLS:

CPI-U: CPI for All Urban Consumers
CPI-W: CPI for Urban Wage Earners and Clerical Workers. It is a subset of CPI-U.
C-CPI-U: Chained CPI-U (C-CPI-U).

The CPI-U is the popularly followed inflation measure. It was introduced in 1978 as a more-broadly-based version of the then existing CPI, which was renamed CPI-W. Note: the financial media often use core CPI-U interchangably with non-core CPI-U.

The CPI-W is used in calculating Social Security benefits. These two series {CPI-U and CPI-W) tend to move together and are based on frequent price sampling, which is supposed to yield something close to an average monthly price measure by component.

The C-CPI-U was introduced during the second Bush Administration as an alternate CPI measure. The C-CPI-U is a direct measure of the substitution effect.

Core CPI: The official line is: Core inflation represents the long run trend in the price level. In measuring long run inflation, transitory price changes should be excluded. One way of accomplishing this is by excluding items frequently subject to volatile prices, like food and energy.

To complicate matters more, the Fed now uses core PCE to measure its effectiveness:

Zitat

---

The preferred measure by the Federal Reserve of core inflation in the United States is the change in the core Personal consumption expenditures price index (PCE). This index is based on a dynamic consumption basket. Economic variables adjusted by this price deflator are expressed in chained dollars, rather than the alternative constant-dollar measure based on a fixed goods' basket.

Since February 2000, the Federal Reserve Board’s semiannual monetary policy reports to Congress have described the Board’s outlook for inflation in terms of the PCE. —Monetary Policy Report to the Congress, Federal Reserve Board of Governors, Feb. 17, 2000

---

Here's a very simplified example of how chained dollars under reports inflation:
1990 $100.00
1991 $101.00
1992 $103.00
1994 $104.00
1995 $105.00
Inflation measured in constant dollars = 5.0% [[105-100]/100]]
Inflation measured in chained dollars = 0.1% [[105-104]/104]]

At shadowstats you can track the CPI-U, the orange line


Monthly release for the CPI-U, CPI-W, C-CPI-U
http://www.bls.gov/news.release/cpi.htm
http://www.bls.gov/cpi/#tables

I haven't yet been able to find where they stash the release of core CPI and PCE. Also still seeking good chart comparing core and non-core CPI and PCE.

Any questions fee free.