Bernanke: ``We have lost control''

[FRED]

Economist recounts talk with Fed chairman

By Joshua Boak | Chicago Tribune reporter
September 17, 2008

NAPLES, Fla. — Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.

The problem with that approach is that the value of the dollar plunged against foreign currencies, causing crude oil prices to skyrocket because oil is pegged to the dollar. It affected food prices, gasoline and family budgets.

"Ben, you are playing a very unique role in world economic history," Hale recalled telling Bernanke, an expert in the Great Depression. "You are the first central bank governor of the United States to preside over a recession with no decline in commodity prices."

Bernanke could hypothetically limit inflation in commodities by raising interest rates, a policy that would restrict the flow of money but potentially lead to an avalanche of bank failures. At a financial conference in Florida on Tuesday, Hale, a Chicago-based economist for investment managers, hedge funds and multinational companies, paraphrased the Fed chairman's response.

"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices." more...

[LargoWinch]

Re: Bernanke: ``We have lost control''

Economist recounts talk with Fed chairman

By Joshua Boak | Chicago Tribune reporter
September 17, 2008

NAPLES, Fla. — Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.

The problem with that approach is that the value of the dollar plunged against foreign currencies, causing crude oil prices to skyrocket because oil is pegged to the dollar. It affected food prices, gasoline and family budgets.

"Ben, you are playing a very unique role in world economic history," Hale recalled telling Bernanke, an expert in the Great Depression. "You are the first central bank governor of the United States to preside over a recession with no decline in commodity prices."

Bernanke could hypothetically limit inflation in commodities by raising interest rates, a policy that would restrict the flow of money but potentially lead to an avalanche of bank failures. At a financial conference in Florida on Tuesday, Hale, a Chicago-based economist for investment managers, hedge funds and multinational companies, paraphrased the Fed chairman's response.

"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices." more...

They lost control the day they themselves decided to drop the Fed Fund rate at 1%...

As a wise man said before: "the theory of the diminishing ammunition is that the last bullet should be pointed towards yourself" (or somethin like that).

[Supercilious]

Re: Bernanke: ``We have lost control''

"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices."

And we are supposed to believe that? I guess we should all tremble in fear and go in front of the Congress asking for more bailouts and fresh-printed more treasuries in order to be "rescued" from a certain unimaginable disaster.

I wonder how long it will take until the first smart guy with media access will smell a rat and begin to talk about what is really happening now....

My bet is on Roubini

[jimmygu3]

Re: Bernanke: ``We have lost control''

Joshua Boak[/I];48394]The problem with that approach is that the value of the dollar plunged against foreign currencies, causing crude oil prices to skyrocket because oil is pegged to the dollar. It affected food prices, gasoline and family budgets.

Oil is pegged to the dollar? Wahooo! Wait, wouldn't dollar depreciation cause oil prices to drop in other currencies then? OK, maybe Mr. Boak doesn't know what a peg is. :rolleyes:

[Starving Steve]

Re: Bernanke: ``We have lost control''

Oil is pegged to the dollar in the sense that the Saudis, the chief supplier to the U.S and the world, get paid in U.S. dollars. So if the dollar is de-valued, the price of their oil gets de-valued. Consequently, they bump the price of oil up.

We are on the oil standard and have been for quite some time. But nobody was told about this; it was kept secret.

Everything was more or less OK until the U.S. decided to run a covert policy of dollar devaluation. Then the oil standard came apart because the Saudis were not going to be the suckers for the dollar devaluation.

[D-Mack]

Re: Bernanke: ``We have lost control''

Oil is pegged to the dollar in the sense that the Saudis, the chief supplier to the U.S and the world, get paid in U.S. dollars. So if the dollar is de-valued, the price of their oil gets de-valued. Consequently, they bump the price of oil up.

We are on the oil standard and have been for quite some time. But nobody was told about this; it was kept secret.

Everything was more or less OK until the U.S. decided to run a covert policy of dollar devaluation. Then the oil standard came apart because the Saudis were not going to be the suckers for the dollar devaluation.

Aren't we still on this standard

I. Economics of Empires

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations or of their subjects. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military that peacefully or militarily enforced the tax. One part of those taxes went to improve the living standards of the empire and the other part went to reinforce the military dominance necessary to enforce those taxes.

Historically, taxing the subject state has been in various forms, usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, the taxation has always been direct: the subject state handed over the money (gold/silver) or the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly—not by enforcing the direct payment of taxes like all of its predecessor empires did, but by distributing its own currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of devaluing over time those dollars and paying back later each dollar with less economic goods. The difference between the value of the dollar during the initial purchase and the devalued dollar during the repayment was the U.S. imperial tax. Here is how this happened.

http://www.financialsense.com/editor...2006/0120.html

[BiscayneSunrise]

Re: Bernanke: ``We have lost control''

Perhaps it is a good thing the Fed has lost control. Now market forces will be allowed to take control and fix the problem.

Interesting observation at the end of the piece about how the Chinese are no longer subsidizing retail energy prices. I forget whether it was on iTulip or not but some predicted the subsidies would end right after the Olympics.

The reason they were there in the first place was to prevent social unrest since the Chinese wanted to present a easily functioning and happy populace to the world. Subsidizing energy prices is no longer tenable for the Chinese so their relaxation will also allow the market pricing mechanisms to work unfettered.

[GRG55]

Re: Bernanke: ``We have lost control''

Perhaps it is a good thing the Fed has lost control. Now market forces will be allowed to take control and fix the problem.

Interesting observation at the end of the piece about how the Chinese are no longer subsidizing retail energy prices. I forget whether it was on iTulip or not but some predicted the subsidies would end right after the Olympics.

The reason they were there in the first place was to prevent social unrest since the Chinese wanted to present a easily functioning and happy populace to the world. Subsidizing energy prices is no longer tenable for the Chinese so their relaxation will also allow the market pricing mechanisms to work unfettered.

Biscayne: True that the Chinese [and other consumer nations such as India] are trying to scale back the subsidies for energy. But I doubt they will quickly achieve a state of allowing "market pricing mechanisms to work unfettered". Energy, especially petroleum, is the most "political" of all commodities, and governments everywhere, including the USA, Canada and Europe, simply cannot keep their fingers out of it. To expect nations with long histories of state managed economies to suddenly be "born again" as free marketeers when it comes to petroleum is probably unrealistic.

No argument the Chinese are using policy to try to move their economy to less energy intensity. Perhaps it will even move some of its manufacturing towards less aggregate energy intensity over time, but the effect of the current subsidy reductions is going to fall primarily on internal discretionary consumer usage, and not much else. Not until we see a sustained fall in the total petroleum consumption of China and India [as we have seen in the OECD] will I be convinced that anything material has changed. I am not holding my breath...

[Thailandnotes]

Re: Bernanke: ``We have lost control''

Now market forces will be allowed to take control and fix the problem.

Not sure how it's spelled. I think it's, "Bwah...hah...hah!"

[sunskyfan]

Re: Bernanke: ``We have lost control''

The are several "ironies" with the "we have lost control" quote.

1. Even if Greenspan did have control at one point old Ben never did because he was given the keys to the car right when it was heading over the clift.

2. "Controling" the economy is a little like thinking you can "control" kids. You can't and it always backfires when you try. You maintain maximum influence and hope that they listen to you for advice and are smart enough to eventually work through the problem on their own.

3. Perhaps is is time to recognize that the global economy grew bigger and faster than anybody dreamed and that "it" is in charge now not old Ben. Reach deep down into your soul and when you do can anybody really say than those who are feeling the pain the most are not the most deserving, at least economically, of that pain? Isn't that what healthy economies do?

[Starving Steve]

Re: Bernanke: ``We have lost control''

Everything was more or less OK when interest rates were something like 5% and the inflation rate was 3%. But now with the inflation rate at 8% or 10%, interest rates at 2% set by the Federal Reserve Bank just don't wash. The smell-test is not passed because real interest rates are negative, so no wonder Bernankee has lost control of the U.S. economy. And no wonder the world economy is in chaos and confidence in the U.S. dollar is disappearing.

We were on the oil standard apparently since the Eisenhower Era. But negative real returns on the U.S. dollar make that oil standard impossible to keep now unless the Saudis are played for suckers.

In other words, the tax for the U.S. keeping the world safe and free is just getting too high. The cost of the Pax-Americana may be just getting too high from the world's point-of-view.

[jimmygu3]

Re: Bernanke: ``We have lost control''

Oil is pegged to the dollar in the sense that the Saudis, the chief supplier to the U.S and the world, get paid in U.S. dollars. So if the dollar is de-valued, the price of their oil gets de-valued. Consequently, they bump the price of oil up.

We are on the oil standard and have been for quite some time. But nobody was told about this; it was kept secret.

Everything was more or less OK until the U.S. decided to run a covert policy of dollar devaluation. Then the oil standard came apart because the Saudis were not going to be the suckers for the dollar devaluation.

Steve,

A peg is a fixed exchange rate or price. Dollars and oil are clearly not pegged. And the "oil standard" theory doesn't pass, either. If so, oil would be pegged at a fixed price and dollars redeemable for oil on demand. Not so. Oil being priced in dollars keeps lots of dollars in international circulation, but any currency can be used and converted via FOREX for oil.

Jimmy