Shut Down the Fed

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by Ambrose Evans-Pritchard: IMF
Fears ‘Social Explosion’ From World Jobs Crisis



I apologise
to readers around the world for having defended the emergency stimulus
policies of the US Federal Reserve, and for arguing like an imbecile
naif that the Fed would not succumb to drug addiction, political
abuse, and mad intoxicated debauchery, once it began taking its
first shots of quantitative easing.

My pathetic
assumption was that Ben Bernanke would deploy further QE only to
stave off DEFLATION, not to create INFLATION. If the Federal Open
Market Committee cannot see the difference, God help America.

We now learn
from last week’s minutes that the Fed is willing “to provide
additional accommodation if needed to … return inflation, over
time, to levels consistent with its mandate.”

this cannot possibly be true.

Ben Bernanke
has not only refused to abandon his idee fixe of an “inflation
target”, a key cause of the global central banking catastrophe
of the last twenty years (because it can and did allow asset booms
to run amok, and let credit levels reach dangerous extremes).

Worse still,
he seems determined to print trillions of emergency stimulus without
commensurate emergency justification to test his Princeton theories,
which by the way are as old as the hills. Keynes ridiculed the “tyranny
of the general price level” in the early 1930s, and quite rightly
so. Bernanke is reviving a doctrine that was already shown to be
bunk eighty years ago.

So all those
hillsmen in Idaho, with their Colt 45s and boxes of krugerrands,
who sent furious emails to the Telegraph accusing me of defending
a hyperinflating establishment cabal were right all along. The Fed
is indeed out of control.

The sophisticates
at banking conferences in London, Frankfurt, and New York who aplogized
for this primitive monetary creationsim – as I did – are
the ones who lost the plot.

My apologies.
Mercy, for I have sinned against sound money, and therefore against
sound politics.

I stick to
my view that Friedmanite QE ‘a l’outrance‘
is legitimate to prevent a collapse of the M3 broad money supply,
and to prevent outright deflation in economies with total debt levels
near or above 300pc of GDP. Not in any circumstances, but where
necessary, and where conducted properly by purchasing bonds outside
the banking system (not the same as Bernanke “creditism”).

The dangers
of tipping into a debt compound trap – as described by Irving
Fisher in Debt-Deflation Theory of Great Depresssions in
1933 – outweigh the risk of an expanded money stock catching
fire and setting off an inflation surge later. Debt deflation is
a toxic process that can and does destroy societies as well as economies.
You do not trifle with it.

the rest of the article

28, 2010

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