–Ben Bernanke and the popular faith

An alternative to popular faith

According to the April 8, 2010 Wall Street Journal, “Federal Reserve Chairman Ben Bernanke said Wednesday that huge U.S. budget deficits threaten the nation’s long-term economic health and should be addressed soon.” That is the popular faith, with “faith” being defined as belief without scientific evidence.

By using the words “addressed” and “soon” Mr. Bernanke is relieved of the responsibility to provide a specific solution or a timetable.

The Journal said, “In remarks to the Dallas Chamber of Commerce, Mr. Bernanke agreed […] that the economy, while improving is still too weak to bear all the new taxes and spending cuts that would come with an aggressive deficit reduction campaign.” The Journal continued, “Cutting the deficit ultimately will mean choosing between cutting (Social Security and Medicare) entitlements, raising taxes or other spending cuts.

This is exactly correct. Federal deficits never have been shown to cause inflation (See: item #8. )or to have any other negative effect on people or on the economy in general. In fact, substantial evidence indicates that reducing deficits has caused nearly every recession and depression in our history. (See: Click here, items #3 and #4. )

By contrast, increasing taxes or cutting Medicare and Social Security benefits or cutting other expenses (defense, infrastructure, health care, food stamps, education, research, etc.) absolutely will have a negative effect on people and on the economy in general.

So which does a sane person choose, something not proven to have a negative effect or something proven to have a huge negative effect?

Mr. Bernanke worries large deficits cause high interest rates. He subscribes to the popular faith that low rates stimulate the economy, despite there being no historical relationship between interest rates and economic growth (See Item #10 ), as he should have learned from his, and his predecessor’s twenty futile rate cuts leading into the recession.

Quoting the Journal, “[…] higher rates push up borrowing costs for many businesses and consumers,” ignoring the many businesses and consumers who are lenders, and who benefit from higher rates. For every borrower there is a lender. All of you who own savings accounts, NOW accounts, money market accounts, corporate bonds and T-securities profit when rates are higher. It may surprise you to learn higher rates have been economically stimulative, because they’ve forced the government to pay more interest into the economy. Finally, some economic hypotheses indicate low rates were partly at fault for the housing bubble.

In summary, Mr. Bernanke promotes a goal with no proven benefit, provides neither a plan nor a timetable for achieving his goal, admits it would require tax increases and spending cuts, both of which hurt people and the economy, and he discusses a possible problem (high interest rates) history shows is more a benefit than a problem.

At long last, will someone please stand up and say, “The popular faith doesn’t seem to work. May we try something new?”

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

4 thoughts on “–Ben Bernanke and the popular faith

  1. Quotes from Thomas Jefferson, founder of the Democratic Party:

    “The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

    “The same prudence which in private life would forbid our paying our money for unexplained projects forbids it in the disposition of the public moneys.”

    “I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt.”

    http://tinyurl.com/teapartypatriot

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    1. Do you also quote Jefferson when discussing quantum field theory?

      The world of economics has changed massively since Jefferson. For one, we no longer are on a silver or a gold standard, both of which restrict the creation of money.

      Today, all forms of money actually are forms of debt. When the federal government creates debt, it creates money. The $12 trillion federal debt is nothing more than a measure of the net money the government has created.

      Money = debt. This is the fundamental statement of modern economic science. Until you understand that, you cannot understand economics.

      Today, the federal government has the unlimited ability to create debt/money. So, there never is a reason for posterity to pay today’s federal debts.

      Re. “The same prudence which in private life […]” no longer is true. The federal government is unique, unlike state and local governments, corporations, you and me. It alone has the unlimited power to create debt/money to pay bills of any size, as it repeatedly proves. How do you think it was able to create $12 trillion out of thin air? No federal check has bounced, and going off the gold standard assured none ever will.

      Compare our economy with that of Greece, which is on a “euro standard,” and so is unable to create debt/money at will.

      Compare our economy with that of California, which is on a “dollar standard,” and so is unable to create debt/money at will.

      Please see https://rodgermmitchell.wordpress.com/2009/09/07/introduction/ for a further discussion.

      Rodger Malcolm Mitchell

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