Volcker:Bernanke is a fool, condemned to repeat history

[m22au]

Quote from olias:

Perhaps. But the argument is that the county was on/ is still on the precipice of Great Depression 2. Whether or not that can be averted, who knows? But who's going to be the one to say 'well, let's do nothing and let it sort itself out'. You realize that Bernanke spent quite some time studying the Great Depression, right?

QE sucks, but in my estimation it is a necessary evil. Certainly better than doing nothing

It has been noted by many people on ET and elsewhere, QE2 is having the effect, and will continue to have the effect of inflating the price of commodities.

Businesses will either have to raise prices to cover these higher input costs (therefore lower real income), or alternatively make lower profits, and/or hire fewer employees.

I'm sure that QE2 will help Wall Street trading desks make nice profits in the coming months, and there may be some trickle down effect into the broader economy.

However for the vast majority of the USA, QE2 will just mean higher prices for food and energy.

 

[Illum]

Well Bernake is going to force the cash out or he will destroy its value. The only problem I see in my noobish eyes is this... They will indeed spend the cash, but it will not be here. They will buy up the third world. We will not see the benefit.

 

[denner]

Quote from Illum:

Well Bernake is going to force the cash out or he will destroy its value. The only problem I see in my noobish eyes is this... They will indeed spend the cash, but it will not be here. They will buy up the third world. We will not see the benefit.

You bring up an essential point. The Fed can create all the inflation it wants, but they have yet to perfect the mechanism whereby they can command their targeted "good" inflation while avoiding the "bad" inflation.

The funny money goes sloshing around and creates even more absurd and freakish bubbles and each time around it's different than the previous incarnation.

 

[Illum]

I think to myself what a waste the housing the bubble was. Imagine if it was a bubble put to a better use. Even something like green energy. Instead of all the homes, and worse yet the home equity loans for jet skis etc. But then again, I find it hard to argue for any sort of command economic activity. I guess in the end I will always believe a free market would make wiser choices with hard earned money. But yes they will spend the cash if forced, I'm under the impression in will be in emerging markets.

 

[endsongs]

Quote from Larson:

No people have not forgotten what led to the unemployment, namely Iranian oil crisis, precipitating sky-high oil prices. Rampant inflation from late 1970s. He broke the inflation, which led to the boom of the 1980s. It was a risky call, but he was the right man at the right time.

http://www.answers.com/topic/paul-volcker

Please check the above link. Paul Volcker was the person behind taking us off the gold standard, which is what caused the inflation. The below link shows that the unemployment rate when Carter left office was 7.5%. It grew to about 11%, almost 50% higher, during Volcker's rate hikes.

http://www.applet-magic.com/rec1980.htm

If you dispute my statistics, please post links countering them.

 

[Larson]

Quote from endsongs:

http://www.answers.com/topic/paul-volcker

Please check the above link. Paul Volcker was the person behind taking us off the gold standard, which is what caused the inflation. The below link shows that the unemployment rate when Carter left office was 7.5%. It grew to about 11%, almost 50% higher, during Volcker's rate hikes.

http://www.applet-magic.com/rec1980.htm

If you dispute my statistics, please post links countering them.

I am disputing your inference that somehow Volcker was responsible for the rising unemployment and inflation, which is absurd. The reasons were laid out in my comment, primarily the oil shock to the economy. The rate hikes were the finale, growth resumed and rates fell. Nixon took the US off the gold standard for political reasons to finance Vietnam War and so forth. Any more questions?

 

[denner]

Quote from Illum:

I think to myself what a waste the housing the bubble was. Imagine if it was a bubble put to a better use. Even something like green energy. Instead of all the homes, and worse yet the home equity loans for jet skis etc. But then again, I find it hard to argue for any sort of command economic activity. I guess in the end I will always believe a free market would make wiser choices with hard earned money. But yes they will spend the cash if forced, I'm under the impression in will be in emerging markets.

It was a tremendous waste and it will haunt us for generations to come. The ruse was that it created an enormous amount of bubble economy jobs, even if they only lasted a few years. It's very easy to see why the Fed loved to juice this sector of the economy, the "food chain" was tremendous.

It's not altogether difficult to see a crack up boom in asset prices with no real economic sector to benefit from the massive liquidity that's been forced upon it. Less retail participation, less volume and less interference for just parabolic bursts higher.

 

[endsongs]

Quote from Larson:

I am disputing your inference that somehow Volcker was responsible for the rising unemployment and inflation, which is absurd. The reasons were laid out in my comment, primarily the oil shock to the economy. The rate hikes were the finale, growth resumed and rates fell. Nixon took the US off the gold standard for political reasons to finance Vietnam War and so forth. Any more questions?

Nixon took us off the gold standard at the insistence of Volcker and the Fed. The economy recovered because Reagan added around 1.7T of stimulus spending/tax cuts to the national debt in 8 years. If the economy had recovered without 1.7T of debt added, then you can say it was all Volcker. But since around 4% of GDP per year of debt money was injected into the economy during Reagan's term, you can't make that distinction.

 

[Larson]

Quote from endsongs:

Nixon took us off the gold standard at the insistence of Volcker and the Fed. The economy recovered because Reagan added around 1.7T of stimulus spending/tax cuts to the national debt in 8 years. If the economy had recovered without 1.7T of debt added, then you can say it was all Volcker. But since around 4% of GDP per year of debt money was injected into the economy during Reagan's term, you can't make that distinction.

How can an undersecretary of the Treas. "insist" that Nixon take the US off the gold standard? The early 80s economy recovered because economic growth picked up in part from the Reagan tax cuts and Volcker's monetary policy. Stimulus was not in the vocabulary in the 1980s.

 

[endsongs]

Quote from Larson:

How can an undersecretary of the Treas. "insist" that Nixon take the US off the gold standard? The early 80s economy recovered because economic growth picked up in part from the Reagan tax cuts and Volcker's monetary policy. Stimulus was not in the vocabulary in the 1980s.

All budget deficits are stimulus, whether they are officially termed that or not. And, from a long term standpoint, the Reagan stimulus may have caused some economic growth, but it did not pay for itself. The principal plus interest paid on Reagan's debt is probably approaching 4T now.