Thursday, November 04, 2010

Bernanke: Rising stockmarket = economic growth

Forget high unemployment.

Forget falling dollar.

This is what the Federal Reserve Chairman had to say in today's op/ed in WaPo. Guambat may have cut and pasted and re-arranged the statement, but these are all direct quotes:

What the Fed did and why: supporting the recovery and sustaining price stability
The Federal Reserve's objectives - its dual mandate, set by Congress - are to promote a high level of employment and low, stable inflation.

Two years have passed since the worst financial crisis since the 1930s dealt a body blow to the world economy.

Among the Fed's responses was a dramatic easing of monetary policy - reducing short-term interest rates nearly to zero. The Fed also purchased more than a trillion dollars' worth of Treasury securities and U.S.-backed mortgage-related securities, which helped reduce longer-term interest rates, such as those for mortgages and corporate bonds.

The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011.

This approach eased financial conditions in the past and, so far, looks to be effective again.

Stock prices rose and long-term interest rates fell.

Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable.

And higher stock prices will boost consumer wealth.

Lower corporate bond rates will encourage investment.

Dear Reader: what the Fed is doing is printing bogus bills. As fast as it can.

And, like his predecessor, who invented this shill (or, if not invented it, adopted it wholesale into the main tool of US monetary policy), as long as stock prices go up, stuff direct action to temper high unemployment and low inflation.

This policy will not, by any linkage or mechanical transmission, lower employment any time soon, if at all. It will, however, most assuredly, debase the currency.

And history tells us the only certain result of a debased currency is staggering inflation.

Hell of hyperinflation
a hyperinflation can be stopped easily. No outside help is needed and stabilisation at least can be achieved without much reform. All the government has to do is make a credible promise that it will not revert to the printing press and that it will balance its budget.

The hyperinflation is driven by corrupt and inefficient public bodies, packed with government cronies, that demand foreign currency from the central bank to buy fuel or fertiliser from abroad. They siphon off wealth and come back for more.

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