July 3, 2010

MR. EVANS-PRITCHARD COULD USE A FEW YEARS HERE AT DARTMOUTH (via Vic Havens):

Time to shut down the US Federal Reserve? (Ambrose Evans-Pritchard, June 29th, 2010, Daily Telegraph)

Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour.

They ran ever-lower real interests with each cycle, allowed asset bubbles to run unchecked (Ben Bernanke was the cheerleader of that particular folly), blamed Anglo-Saxon over-consumption on excess Asian savings (half true, but still the silliest cop-out of all time), and believed in the neanderthal doctrine of “inflation targeting”. Have they all forgotten Keynes’s cautionary words on the “tyranny of the general price level” in the early 1930s? Yes they have.

They allowed the M3 money supply to surge at double-digit rates (16pc in the US and 11pc in euroland), and are now allowing it to collapse (minus 5.5pc in the US over the last year). Have they all forgotten the Friedman-Schwartz lessons on the quantity theory of money? Yes, they have. Have they forgotten Irving Fisher’s “Debt Deflation causes of Great Depressions”? Yes, most of them have. And of course, they completely failed to see the 2007-2009 crisis coming, or to respond to it fast enough when it occurred.


The Fed kept rates low as if we were in a deflationary epoch and could expect more deflation and, lo and behold, that's what we got, despite massive stimulus by ever developed economy on the planet. Idiots...

Posted by Orrin Judd at July 3, 2010 12:28 PM
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