The New York Times headline reads Dear Ben: It’s Time for Your Volcker Moment.
I expected the article to be about inflation. It starts out as such, praising Volcker for his commitment to lower inflation. A third of the way through came an innocuous looking sentence "Mr. Bernanke needs to steal a page from the Volcker playbook."
From there it went straight downhill.
Here are a few snips ...
Who is this Monetarist Fool?To forcefully tackle the unemployment problem, he needs to set a new policy framework — in this case, to begin targeting the path of nominal gross domestic product.
More specifically, normal output growth for our economy is about 2 1/2 percent a year, and the Fed believes that 2 percent inflation is appropriate. So a reasonable target for nominal G.D.P. growth is around 4 1/2 percent.
It would work like this: The Fed would start from some normal year — like 2007 — and say that nominal G.D.P. should have grown at 4 1/2 percent annually since then, and should keep growing at that pace. Because of the recession and the unusually low inflation in 2009 and 2010, nominal G.D.P. today is about 10 percent below that path. Adopting nominal G.D.P. targeting commits the Fed to eliminating this gap.
It does not take a genius to understand why consumer spending is weak.
- Unemployment rate is 9%
- Real wages are falling
- Income advances go to the wealthy
- Middle class is shrinking
- Jobs hard to find
- Approval ratings of Congress and Obama at record lows
- Consumers have high debt ratios
- Home prices are still falling
- Homeowners are trapped in their homes, unable to refinance
- Boomers need to save for retirement
Change of Heart in Bernanke?
However, those simple facts are far too complicated for a PhD like Fed chairman Ben Bernanke to figure out.
Is it any wonder his policies are so counterproductive when he cannot figure out simple things the average person can see clearly?
Dear Christina, please read those three paragraphs closely.Fiscal policymakers face a complex situation. I would submit that, in setting tax and spending policies for now and the future, policymakers should consider at least four key objectives. One crucial objective is to achieve long-run fiscal sustainability. The federal budget is clearly not on a sustainable path at present. ...
As a nation, we need to think carefully about how federal spending priorities and the design of the tax code affect the productivity and vitality of our economy in the longer term. Fourth, there is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy. In sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed.
Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies--pertaining to labor markets, housing, trade, taxation, and regulation, for example--also have important roles to play.
Currency Cranks Agree With ThemselvesFed's Policy Is Theft
Stephanie, it's a little known fact that inflation benefits those with first access to money, such as the banks, the wealthy (via rising asset prices), and the government (think rising sales taxes and property taxes when prices go up).
Everyone else gets screwed. You are right in the middle of the pack of those most hurt by the serial bubble blowing policies of the Fed.
Viewed this way, Bernanke's policies are nothing but theft, robbing the poor, for the benefit of banks and the wealthy.
This is why I support Congressman Ron Paul's effort to end the Fed.
Ants and Termites in Increasing AgreementThere is increasing agreement among economists on two broad principles of monetary policy. The first principle is that monetary policy should aim to stabilize some nominal quantity. Monetarists have sought to make monetary policy stabilize the growth of the nominal money stock. In some periods of history, policy has been committed to pegging the nominal price of gold. Some economists have proposed stabilizing a bundle of commodity prices or even the consumer price index (CPI).
The second principle, which was taken for granted up until the past fifty years, is the desirability of a credible commitment to a fixed rule for monetary policy. It is now apparent that there are substantial gains if the central bank commits in advance to a set policy, rather than leaving itself free to exercise unconstrained discretion.