Ben Bernanke's straightjacket
Mark Anderson
March 06, 2008
Ben Bernanke's recommendation is that the loan market write off principal on mortgages. Objectively, this is asking the loan market to compensate for the shedding of faux equity by the market, by trying to create new equity through accounting tricks. Sorry. Not going to work. This will do nothing to fix the problem. The market is repudiating the artificially high prices which the loan market and home-buyers helped generate. The correction is far from complete. Is the loan market to keep writing off principal?
People made miscalculations about the value of the dollar, naively believing that homes were becoming more valuable. They gambled and lost. For this, they do not deserve to have their homes handed to them any more than gamblers deserve a refund from the casino. This would amount to a gigantic subsidy for home-owners on the backs of the homeless. Asking the loan market to let home-owners skate will only flatline the loan market even sooner.
It should be self-evident that the Fed is without wiggle room. Ben Bernanke is in a straightjacket, and he might as well come out and tell Congress they can shut the Fed down. He would certainly carve out a nice spot for himself in the history books, and be deserving of accolades.
Unless Bernanke has more inflationary plans, he and the Fed can quit. But how sinister that would be to ask the loan market to deflate mortgages, if, at the same time, the Fed is going to combat deflation. Go home, Ben. You don't need a replacement.
The loan market is a goner. Perhaps people will now learn the lesson: i.e., there is no right way to have a real rate of interest below zero. There is no right way to manage inflation. Nature has a way of punishing bad decisions, doesn't it? The inflationary drugging was fun while it lasted, but the loan market was destroying itself. Sorry, people, but alchemy doesn't work. It all looked good on paper, but the entire time the housing price bubble was developing, the loan market was eroding the real pool-of-funding, tapping itself out, thus diminishing its capacity for future inflationary credit expansion. The problem hasn't been "sub-prime" borrowers. If it was just a matter of home loan defaults, that would be asystemic. The banking system is fundamentally unsound, and it can't continue to inflate away its insolvency without more forceful forms of government intervention.
The game is over. Well, not yet. Unless we are going to let prices fall (like we should), it will require more coercive methods to inflate--viz., more government spending, "stimulus" packages, and FDIC bailouts. Makes me wish Bernanke & Co. would just give up.
Will the politicians relinquish their power? Without inflating the money supply, the Federal Reserve has no reason to exist. There can be no deflation without there having first been inflation. There is no need to centrally plan deflation. Is the Fed going to shut itself down? If the answers to these questions are both no, then we know what to expect: hyper-inflation.
To the tune of CCR's Bad Moon Rising
I see bankers printing
I see politicians whoring
I see reckless spending
I see gold prices soaring
Chorus:
Government I despise
It's bound to tell you lies
There's inflation on the rise
People made miscalculations about the value of the dollar, naively believing that homes were becoming more valuable. They gambled and lost. For this, they do not deserve to have their homes handed to them any more than gamblers deserve a refund from the casino. This would amount to a gigantic subsidy for home-owners on the backs of the homeless. Asking the loan market to let home-owners skate will only flatline the loan market even sooner.
It should be self-evident that the Fed is without wiggle room. Ben Bernanke is in a straightjacket, and he might as well come out and tell Congress they can shut the Fed down. He would certainly carve out a nice spot for himself in the history books, and be deserving of accolades.
Unless Bernanke has more inflationary plans, he and the Fed can quit. But how sinister that would be to ask the loan market to deflate mortgages, if, at the same time, the Fed is going to combat deflation. Go home, Ben. You don't need a replacement.
The loan market is a goner. Perhaps people will now learn the lesson: i.e., there is no right way to have a real rate of interest below zero. There is no right way to manage inflation. Nature has a way of punishing bad decisions, doesn't it? The inflationary drugging was fun while it lasted, but the loan market was destroying itself. Sorry, people, but alchemy doesn't work. It all looked good on paper, but the entire time the housing price bubble was developing, the loan market was eroding the real pool-of-funding, tapping itself out, thus diminishing its capacity for future inflationary credit expansion. The problem hasn't been "sub-prime" borrowers. If it was just a matter of home loan defaults, that would be asystemic. The banking system is fundamentally unsound, and it can't continue to inflate away its insolvency without more forceful forms of government intervention.
The game is over. Well, not yet. Unless we are going to let prices fall (like we should), it will require more coercive methods to inflate--viz., more government spending, "stimulus" packages, and FDIC bailouts. Makes me wish Bernanke & Co. would just give up.
Will the politicians relinquish their power? Without inflating the money supply, the Federal Reserve has no reason to exist. There can be no deflation without there having first been inflation. There is no need to centrally plan deflation. Is the Fed going to shut itself down? If the answers to these questions are both no, then we know what to expect: hyper-inflation.
To the tune of CCR's Bad Moon Rising
I see bankers printing
I see politicians whoring
I see reckless spending
I see gold prices soaring
Chorus:
Government I despise
It's bound to tell you lies
There's inflation on the rise
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