Recovery for whom? Main Street or Wall Street?
As for Bernanke's blog, yes, I read and giggled. Not sure "Lucid" was the word I would use.
From ZH
Ben Writes:
The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent.
of course the Fed can reduce rates below zero: just look at all of its foundering central bank peers in Europe. NIRP is coming to the US, and Bernanke knows it. Furthermore he is being utterly disingenous:
I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.
Oh, ignore QE please. After all it has led only to a tiny $4.5 trillion Fed balance sheet. What's that: like 25% of US GDP? Just ignore it. Not like the Fed can't raise rates and disappear trillions in bank excess reserves in "15 minutes." Of course, the S&P will be trading at 15 as well, but who cares.
The farce continues:
Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today.
It sure does:
Oh, and please ignore the following too.
And this:
Just keep repeating: on way to "full employment." Affter all Ben Bernanke said it.
First, as I pointed out as a participant on the IMF panel at which Larry first raised the secular stagnation argument, at real interest rates persistently as low as minus 2 percent it’s hard to imagine that there would be a permanent dearth of profitable investment projects. As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period.
The days of the Rocky Mountains may well be numbered. And then the bubble master himself says something truly profound.
I generally agree with the recent critique of secular stagnation by Jim Hamilton, Ethan Harris, Jan Hatzius, and Kenneth West. In particular, they take issue with Larry’s claim that we have never seen full employment during the past several decades without the presence of a financial bubble. They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output. They argue that recent slow growth is likely due less to secular stagnation than to temporary “headwinds” that are already in the process of dissipating. During my time as Fed chairman I frequently cited the economic headwinds arising from the aftermath of the financial crisis on credit conditions; the slow recovery of housing; and restrictive fiscal policies at both the federal and the state and local levels.
Ironic Bernanke should say that, because what the world will most remember him for are the sayings on the linked page: Federal Reserve Board Chairman Ben Bernanke's Greatest Hits. Everyone should read these to recall what the Fed chairman was really saying.
But the punchline, and where Bernanke's true colors once again shine, is in his final paragraph:
My greatest concern about Larry’s formulation, however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home. The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports. Increased exports would raise production and employment at home, helping the economy reach full employment. In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy
Clearly that theory has worked so well for all hyperinflating countries who took Bernanke's advice and crushed their currency only to not reap the numerous benefits of monetary collapse and the resultant economic devastation.
However, where everything clicks, is Bernanke's insistence that it all goes back to crushing the dollar, i.e., printing so much of it that it is devalued. Which in turn brings us to Bernanke's far more seminal and important speech from November 2002, "Deflation: Making Sure "It" Doesn't Happen Here", in which he laid out very clearly how this entire episode of market, financial and economic idiocy will end.
... the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.
And there you have it: when all else fails, the helicopter will come out. A helicopter that will drown the world in crisp $100 (and soon $100,000,000,000,000) bills, which in turn will hyperinflate everything. The debt included.
Is it thus any wonder then why Bernanke used the word "debt" only once in a blog post that was all exclusively about debt?
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