Tuesday, November 2, 2010

Helicopter Ben Bernanke

Critics of Federal Reserve Chairman Ben Bernanke (like me) offer refer to him as "Helicopter" Ben.

Here's why.

Read his speech before the National Economists Club on November 21, 2002 and why he got the nickname.

This speech is even more relevant today than it was almost ten years ago.  The subject of his talk was deflation and even today Bernanke is fighting the wrong paper dragon.  He's risking hyperinflation through his extremely easy money policies while losing sleep over deflating asset values which rose to extreme and unsustainable levels in the first place.  In other words, the current situation is more a market correction in asset values rather than a classic monetary deflation.

His speech is filled with choice gems of illogic.  Here's a great one widely quoted:

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.  (emphasis added)

So where does the "Helicopter" idea come from?

It actually comes from Milton Friedman who joked that the U.S. government could solve deflation by just throwing cash out of a helicopter.  Friedman ridiculed this idea.  Bernanke in his speech embraced the very notion of curing deflation by simply printing more money.

Ben Bernanke is a nice man, I'm sure.  But he is one of the most incompetent Fed Chairman in the history of the Fed, a truly profound statement given the assorted parade of hacks and bozos that have occupied the office since 1913.  Don't believe me.  Read his speech.