Posts Tagged Ben Bernanke

‘Fool in the Shower’ to Give Fed a Scalding: Caroline Baum – Bloomberg

The Fool in the Shower


Learned of Milton Friedman’s evocative image, “the fool in the shower” in this article, which Mish links to. I’ve underlined the truly astonishing part, for my busy readers’ benefit (don’t mention it!). You may need to read it twice (or ten times) to check you read it correctly the first time. Talk about double-take!

What the Fed is saying, in essence, is that as the economy improves, it’s appropriate to provide as much stimulus, or support, as it did in late 2008, when the economy was contracting and the financial system was imploding.

This is a dramatic shift. Given the long and variable lags with which monetary policy operates, past Fed officials at least paid lip service to the notion of acting preemptively: withdrawing excess stimulus — a fancy way of saying they will raise interest rates — as the economy improved.

Not so the current committee, which is tilted toward doves after the annual rotation of voting members. This group seems to think it should “continue to ease as long as there is economic slack,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “It’s a classic, elemental mistake,” he said, one described by the late Nobel economist Milton Friedman as the “fool in the shower.”

The fool turns on the water in the shower, steps in and finds that it’s still cold. So he turns the knob all the way to hot, only to get scalded when the water heats up with a predictable lag.

via ‘Fool in the Shower’ to Give Fed a Scalding: Caroline Baum – Bloomberg.

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How the Ben Bernank will save the America and the world

Latest update:   3,269,368 views as of 2010.12.5.11:32 (JST)
ROFLMAO. The Xtranormal computerized voices only make it funnier – they seem to have a comic sense of timing. If you are eating or drinking, cover your keyboard and screen with clear plastic. You might also want to put on an apron. Then you’ll want to bang your head against a wall, but remember – medical expenses just went up thanks to change we can believe in.

I first saw this video a few hours ago. It had around 15,000 views. Now, 8 hours later, when I posted it, it had 46,780. How long will it take to get it to 2 trillion? Or even just a measly 600 billion?

Update: 182,031 (@ 2010.11.14.21:17)

Upperdater: 2,032,554 @ 2010.11.20.16:28 JST)

Update: 2,707,943   (2010.11.25.11:22 JST)

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Learn Economics Thru Movies – Ferris Buehler’s Day Off

Remember Ferris Buehler’s Day Off? Remember the valet in the parking lot? Yee-haaaarrr!! Gary North, a successful businessman and writer, economist, historian, and former professor, uses this memorable image from the movie Ferris Buehler’s Day Off to explain today’s economic reality in a recent article entitled Ferris Geithner’s Day Off (subscription site):

Because of the Federal Reserve, the economy is in such bad shape that lenders depend on the Treasury to park their money for them.
Think of Timothy Geithner as a valet in some downtown parking lot. You drive your car to the little booth. You hand him the keys to your car. He says he will park it for you. He says you can get it back at any time. He holds the keys to your car, and you trust him. He hands you a ticket. It is an IOU to your car.

When I think of Tim Geithner, I think of the valet in “Ferris Bueller’s Day Off.” It’s joy ride time! He climbs into the car, and his buddy leaps in beside him. Off they go! The buddy, of course, is Ben Bernanke. Think about this situation. The lenders of the world are lending trillions of dollars to an agency that has a AAA rating, yet this agency is the most indebted organization on earth. It is on the hook off-budget for at least $75 trillion that it does not have for Social Security and Medicare. It is on the hook on its on-budget budget for $12.6 trillion. This will be $14 trillion before we know it.

Our government is not alone. All Western governments are on the hook for similar percentages. It is just that the United States is larger than the other governments. They, too, are lenders of last resort only because they are borrowers of last resort.

Dr. North then expands this to create a further image: Of course, it’s more complex than this. It is a gigantic system of parking tickets, with tickets against tickets. Dr. North is a believer in free-market economics. He ends his article with a sobering proposition (my emphasis):

For someone to lose confidence in what appears to be the central institution of society, the national government, he must then search for a plausible alternative. Not to begin such a search is to abandon hope.

The central institution of the United States has always been the free market. But this is not an organized market. There is no visible chain of command. It has been under constant assault by intellectuals and the media ever since the Great Depression. The typical American does not perceive the extent to which the free market, not civil government, provides him with whatever protection he enjoys.

So, as he steadily loses faith in the Federal government, there is no replacement institution. He therefore clings to whatever remnants of the confidence he once possessed.

I think the underlined phrase applies not only to Americans, but to many citizens of that most popular of the 20th century’s political systems: social democracies.

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