08/05/10 Tampa, Florida – Hossein Askari is a professor of international business and international affairs at George Washington University, and Noureddine Krichene is an economist with a PhD from UCLA, which I mention to establish their credentials, since some bozo from the Federal Reserve created a stir when he said, with a sniff of condescension and smugness, that nobody should comment about economics unless they have a PhD in economics from a “proper” university, because we unwashed huddled masses are “dangerous” and a “threat to society.”
He says this because, see, we drooling lay persons are all too, too stupid to comprehend something that is actually simplicity itself: when the supply of money grows faster than the stock of goods and services, the money will diffuse through the stock of goods and services with the result of higher prices for goods and services.
Seems simple to me! But then I am not a Federal Reserve hotshot with a PhD in economics from an “acceptable” university to wave in anyone’s face, and neither do I subscribe to the idiotic neo-Keynesian econometric crapola that fascinates the Federal Reserve and mainstream academia, a theoretical monstrosity which has resulted in the horrific economic mess we are in, and from which there is, alas, no escape.
In fact, I am absolutely sure that there is No Freaking Way (NFW) to prevent the collapse, being, as it is, just the collapse of yet another of history’s dismal experiments with boom economies built on fiat money and huge debts, because if there WAS a way out of the mess caused by too much money and too much government spending, then there would be no such thing as economics!
I mean, if there was a Mysterious Magical Way (MMW) to painlessly erase all debts and liabilities, then everyone could always spend as much as they liked! And people would always say, “Party on, dudes!” And verily they would party on, because when things finally got really bad and everyone is choking on their debts, the government could wave the MMW wand and make all the bad things go away and life would be wonderful again!
I am, personally, like all economists, secretly looking for that MMW because then I would be forever famous! Famous! And maybe people would like me! And maybe I could get a better job than the crummy one I have now! And maybe people wouldn’t call me “idiot” and “lunatic” all the time!
Askari and Krichene don’t actually call me an idiot or a lunatic, or even refer to me at all, but they do seem to note that everybody is looking for that MMW, to painlessly erase all debts and liabilities, in their essay on atimes.com titled “The Volcker-Bernanke puzzle.”
They, unfortunately, start right out with a glaring need for some Serious Mogambo Editing (SME) when they write, “Assuming Fed chairman Ben Bernanke succeeds in reverting the US economy to full employment and rapid growth,” which my keen editor’s eye clearly sees should more correctly say, “If, against all odds, common sense and 4,500 years of history, clueless Fed chairman Ben Bernanke actually succeeds in reverting the US economy to full employment and rapid growth, then it will truly be a miracle, especially since The Fabulous Mogambo (TFM) just spent several introductory paragraphs saying it was freaking impossible.”
They ignored my editing suggestion, and went on to write that, in the aftermath of such a miracle, “then economic historians will be facing a difficult puzzle that could be coined the Volcker-Bernanke puzzle.”
So there is going to be a puzzle! I love puzzles! I especially like those big wooden puzzles that only have four pieces, with little handles on each one, and when you finally get all the pieces in place, it makes a picture of a duck or a dog or a sailboat!
I love these puzzles because they don’t take long, and so you can soon get back to doing important things, like writing hate mail to the Federal Reserve (“Dear Monetary Halfwits, I hate you because you have been so consistently wrong about everything and now we are freaking doomed with your stupid expansion of the money supply!”)
Alas, it was not to be that kind of puzzle. Instead, they are referring to the paradox that exists by first noting, “Paul Volcker, Fed chairman from August 1979 to August 1987, got the US economy out of 11-12% unemployment by pushing money market rates to 19%.”
The paradox comes in when comparing the actions of Ben Bernanke, Fed chairman since 2006, who “pushed unemployment from 4% to 10% through aggressive monetary policy with near-zero interest rates, massive monetary injection, and buying all toxic bank loans.”
Well, as far as puzzles go, I guess university professors get a big yuck out of these kinds of intellectual puzzles, but I admit that I am just a dumb guy who doesn’t get it. I just don’t.
They helpfully try to help me see the humor when they explain, “Somehow, either extreme, very tight or very loose monetary, could be followed by policymakers to solve the unemployment problem and propel economy back to prosperity. It makes no difference which extreme is adopted!”
I admit that it does seem somehow funnier when they explain this puzzling paradox thing, but I’m not sure.
I am sure, however, that deep down inside me there is a cynical, paranoid part of me that interprets the joke as a reminder to buy as much gold, silver and oil as you can, which will protect you against the terrifying and economy-rending inflation in prices that is sure to come as a result of such insane over-creation of new money by the Federal Reserve and the equally-insane borrowing-and-spending by the Obama administration, which is not really funny, either.
Or maybe the joke of the puzzle is that while others are whining and crying that everything is in ruins and all their wealth is gone, eaten up by losses, inflation and taxes, those who buy gold, silver and oil will be grinning goofily with gratifying glee and gluttonous greed that, “Whee! This investing stuff was easy!”
The Mogambo Guru
for The Daily Reckoning
The Mogambo Guru
Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications. For podcasts featuring the Mogambo, click here.
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Ah, there is magic in the air.
Weimar Germany did just this sort of magic in the arly 1920′s did they not
My God, that was actually lucid!
Concerning the “bozo from the Federal Reserve created a stir when he said, with a sniff of condescension and smugness, that nobody should comment about economics unless they have a PhD in economics from a “proper” university,” We find tis interesting posts from the past-
“We will not have any more crashes in our time.”
- John Maynard Keynes in 1927
“For the immediate future, at least, the outlook (for stocks) is bright.”
- Irving Fisher, Ph.D. in Economics, in early 1930
Oh yes, those with a Ph.D. sure are smarter then the rest of us, past and present…
Thank The Gods (TTG) for the Mogambo Guru because without his Irreverently Hysterical Insights (IHI) I would surely Cry Myself to Sleep (CMS).
“we will never return to the old boom and bust”.
Not a PHD but someone with less qualification and more responsibility…Gordon Brown
Dear Mogambo!
Sorry to disappoint you, but there is no Bernanke Volker paradox. Employment and unemployment rest on business plan, not a financial plan. If, as a businessman, I would come up with the plan that will let me profit while the rate is high double digit, I will do it the rate notwithstanding. If no business plan can show a profit even with the low rate – I will not do it. And besides, the low rate of today comes with caveat – there actually no way to borrow money for business. Banks were running away from business lending for years, while giving preference to real estate lending. Banks lost touch, instruments and skill for business lending. Real life business lending is reduced to borrowing against cash deposit in many cases. From macroeconomic standpoint it means that low rate from Federal Reserve is totally irrelevant for brick and mortar economy. So employment increases in my view more strongly correlated with business owned available capital. The grows of that capital above certain comfort threshold would trigger new hiring. That mechanism is known notoriously slow to work. That is why one more for L shape recovery. Many times US were pulled out of the recessions due to shenanigans or coincidences. They amount to essential changing rules of the game and historically well known. Among them are Fanny Mae government support of lending and WWII and GI benefits act, Star wars(Reagan military spending), 401k creation, Iraq war -1, Internet boom. And my personal favorite – real estate boom, that single-handedly solved unemployment problem after last recession.
And being cocky today, I guess I know Mysterious Magical Way (MMW) to painlessly erase all debts. It is called Hyperinflation. The other thing is how to get there in the whole country without balls to ask for what earned? With counterinflation encroaching on earnings of basically every person in the country?
My prognosis is multi-prong. Shenanigan will be invented again – remember green jobs?
Here the joyful way out of recession. Economy will continue as is. The chief worry is counterinflationary forces outgrowing grows of capital. The danger is real, as taxes paid slowed to a trickle, and attempt to rise revenue will choke businesses still standing, and force them to put away hiring for later time, according with capital rebuilding dynamics.
Accumulated wealth along with printing press will be used to support unemployed, causing further capital destruction . Cautious consumption will replace conspicuous consumption for generation. Fear of deflation. It is non-monetary phenomena, and no one knows how to fight it. The Japan did its best by holding non-performing loans on the books for decades. The US did not come up with anything better so far. That is the essence of bailouts.
Low interest rates spur business investment but at the same time it undercuts labor rates. A machine that costs 500k to replace a single worker makes no sense at normal interest rates, add free or nearly free financing plus tax breaks for making capital investments and it is well worth it. All businesses do this and prices drop quickly, but then there’s that many fewer to buy their products. Unless……
The monetary base is inflated at a rate that actually overshadows that price deflation, and is counted as an increase in GDP so the government feels confident in adding oodles of new people, starting new programs and whatnot. This draws in the excess labor, finance draws in the rest as businesses are gearing up for the growing economy by buying even more machines on credit…
Anyway, you see where this is going and where we are now, nuff said.
how can i become a JMR?
i keep seeing mention of Gordon Brown and would wish to add a few comments about this financial terrorist