Every Breath Ben Bernanke Takes

By Randolph

Ironically, this video spoof is even more relevant today than when the kids at Columbia Business School put it together over a year ago.

We can only dream of what the Fed would have been like under Dean Hubbard, sadly.

Comments

[apostasy]

So do people here think Bernanke will seek price stability (in which case he needs to raise rates) or political expediency (in which case he will lower rates)? So far, he has held the line on dropping rates despite the wailing and gnashing of teeth, but the pressure cooker is only getting warmed up at the moment. He'll face real challenges to his mettle in 12-18 months, and we'd be extremely fortunate to find another Volcker in such a short span of time.

If he holds the line on rates or even raises them, the impact on the 2008 federal elections could be significant. I'm not at all confident that the American polity is economically savvy enough to realize the snake oil that would be peddled by politicans of all stripes (excepting Ron Paul) in the midst of a 80's-style recession or 70's-style stagflation. Short of foreign and domestic creditors taking away the cookie jar of virtually unlimited debt issuance, I anticipate a lot of promises we can't keep paid for by debt we can't pay back.

[randolfe_]

I think Bernanke will try to seek price stability through inaction more than anything. He's going to drop rates a little, but much less than the street and the screaming clowns on CNBC are "demanding" him to. Bernanke will probably try to use the bully pulpit of the Fed to talk inflation into the corner.

I don't think this will work. We really do need a Volcker right now, but I'm not even sure Volcker would have been strong enough to pull off what we need Bernanke to do. Volcker had a much more clear problem before him; one which was within the ability to explain simply to Reagan and gain support. Bernanke's dilemma is much more complex, and he has a much less sophisticated bunch in the White House and on the Hill to work with.

In the end I think Bernanke will go down in history as being the guy who oversaw the loss of the Fed's ability to effectively control monetary policy in the US through nominal rates. By the end of this we'll be affected as much by LIBOR as we are by the Fed Official Rate.

[GK]

I think there is a lot of pent-up ammo if the Fed Funds rate is 5.25%. Lowering it in 0.25% steps to around 3.5% (7 moves) will make the economy ride out the Housing bubble without a full recession.

[randolfe_]

GK

How do you think that will interact with inflation and the dollar? Not that I disagree -- I think a lot of dollar concern is overblown -- but there is a concern as relating to imported energy purchases and weakening dollars.

[GK]

randolfe,

I just don't see any chance of high 70s-style inflation. When the Feds Funds rate was at a 45-year low of 1% for over a year, even that did not cause any inflation.

High-tech products, which are deflationary in nature, are becoming an ever-larger share of the economy, and are making it hard for inflation to rise.

Oil is already $80/barrel, an the inflation spike caused by the run-up from $20 to $80 is already behind us. Even if oil stays at $80, that is a flat price from this point.

So I just don't see much chance for high inflation, because the two biggest things that could cause it - super-low int. rates and a huge rise in oil prices, have already happened without incident.

[randolfe_]

GK,

Do you give any credibility to the charges of self-serving hedonic revisions to the metrics by which inflation is measured? I've tried to argue that there is no grand conspiracy with "bubble bloggers", but to no avail. The problem is that there is probably at least a bit of self-serving political opportunism wrapped up in the changes to the basket, cpi, pce deflator, m3, et. al.

How do you counter the response that inflation has indeed spiked as a result of greenspan's near ZIRP policy, just we're underreporting it?

By the way, I think we're underreporting a bit, but I think more of the inflation is being "exported", primarily to China as trade deficits and to the Middle East as petrodollars. Analyzing that is a whole other thread, though.

[GK]

randolfe,

I suppose that self-serving political opportunism would pressure the changes in CPI basket revisions. But I doubt it could make the report too inaccurate, as every segment of inflation ties to every other segment (oil prices tie to food, clothing, etc.).

I don't think Greenspans period of super-low rates caused a lot of inflation that is not being reported, as rates rose back above 3% some time ago. It is too late for the 1% era of 2-3 years ago to still be causing inflation. But I am not an expert of this subject.

I also do think that some of the deflation induced by technology is not being captured. If pirating music prevents people from buying CDs, where is that accounted for? How about paying bills online instead of using stamps and paper? How about flat-screen TVs becoming competitive with tube TVs in price, but having higher picture quality? How about people quitting their newspaper subscriptions and getting news online for free? How about Wikipedia eliminating trips to the Library (in some cases)? How about an iPod that now has 10X the storage capacity of 4 years ago, for the same nominal retail price? How about Netflix + Online Movies eliminating the trips to blockbuster?

I think there is quite a bit of tech deflation that is not accounted for.

[Brand]

@GK: Most of your examples are of technology improving. Conspicuously, hardly anything you mentioned involves decreased consumption. My new iPod holds 10x as much as my original one, but I still own one iPod for about $250. My current hard drive is 1000x the capacity of my first hard drive in 1993, but I still have a hard drive and it is 80% full. I might buy an LCD television, but I still own a television and paid approximately the same price as my tube box from ten years ago. My car costs in the same ballpark as previous generations (inflation adjusted, of course), but it gets almost 2x MPG.

To boot, while the items you mentioned are "deflating" in terms of profit margin, many also increase productivity. Thus those technologies contribute far more to GDP than they subtract.

[randolfe_]

GK,

I think Brand has a point that is similar to one I was going to make. The problem using technological advances as deflationary factors is that you have to net that against GDP growth effect. You seem to be following a more or less neoclassic reasoning (which I can appreciate, being my bias as well). So in such an analysis the only long-run source of true GDP growth is productivity gains enabled by technology. All other gains (capital growth, population growth) fall away over time, netted against costs and replacement.

[GK]

"So in such an analysis the only long-run source of true GDP growth is productivity gains enabled by technology. "

Yes - as it is the only way that aggregate living standards truly rise. Everything else is zero-sum.

[jenn]

Thanks for your diligent work in putting together the bubble and all of the other information to help people like me decide whether or not to purchase a home right now. You have saved me potentially tens and tens of thousands.

Godspeed in your endeavors!

[skibum]

Randy,

Sorry to interrupt the flow of the conversation. I don't know if you've been lurking back at patrick.net or over at the zillow site, but a minor "altercation" has developed there between (yet again) allah and someone posting as Randy H on zillow. I have my doubts the poster on zillow is you, as the language just doesn't match. Could you provide some clarification?

TIA!

[Brand]

skibum, even if that wasn't the "real" Randy H. on Zillow, that was still the real Allah from Long Island spreading rumors that Randy got banned from patrick.net. If that accusation proves false, Patrick should ban him permanently.

[skibum]

Brand,

Agreed. Whether or not that is Randy posting, allah seems to be continuing to have some kind of personal beef with Randy, and he can't seem to let go. I'm not one for trying over-moderate a blog, and certainly I wouldn't want to censor, but his posts both at patrick.net and on zillow do nothing other than embolden folks who already believe RE bears are just wacko, way out in left field, frothing-at-the-mouth lunatics.

I enjoy much of allah's posting, but he does have a tendency to provoke for the sake of provoking (ie, trolling).

[randolfe_]

Skibum, Brand

That is me posting on Zillow, though a few posts a week or so ago were spoofed. Zillow had an issue where people could hijack your name (using international font characters). But most of what you see is me.

Yes that is also "allah" harassing me on Zillow. I've had to delete some of his comments here too. I'm not sure what his issue is, and frankly I don't care. I try to ignore him best I can, but on Zillow it's hard because he stalks my every post.

My voice sounds a bit different on Zillow because it's a bit of a different forum, and it has a broader community. But also because this latest round with "allah" and some others I managed to not air in public on Patrick's kind of pushed me over the edge. If you will, I threw in the towel and ceded. I'm not a doomster, and I don't like trolls on either end of the debate. A number of Patrick.net lurker readers correspond with me through email. The reason they won't post is because of all the blog-bullies. I do have a problem: I always get into fights with bullies. It's been a failing of mine my entire life, and I occasionally let rip in the blogosphere too, unfortunately.

The bottom line is I just don't have it in me to argue against the "I've got a bigger doomstick than you do!" folks anymore. I yield. They can have Patrick.net.

I didn't get banned from Patrick. Patrick is a decent guy. I did lose admin privileges, but I haven't used them in a long long time so I'm not entirely certain that happened because of recent events. I'm not sure if I can author anymore or not, but it could well be not. I did get admonished by Patrick for apparently "abusing and offending a number of readers". I took that at face value. But now seeing "allah" stalk me over to Zillow I more imagine that he probably sent a bunch of aliased emails to Patrick complaining or something like that. It's well within his modus operandi.

Anyway, feel free to keep in touch and post here, chat w/ me on Zillow, email me, or ... I am looking for authors on my blog if you're ever interested. I'm all about creating a mature place for reasonable discussion and debate. It doesn't even have to be about housing or economics. In the end, *everything* is related to economics anyway ;-)

[astrid]

Randy,

My sympathies on Allah's inexplicable need to constantly hound you. Like many on the patrick.net, I do miss your contributions there.

[randolfe_]

Thanks Astrid

I hope you post the second half of your Iceland article. I've been looking forward to reading it.

[skibum]

Randy,
What is Hubbard's slant on macroeconomics, in a nutshell? I gather from your post that he's no Heli-Ben? Was he dean when you were there?

[Brand]

astrid, I second the motion for the Iceland follow-up article. Your pictures were also quite impressive.

Randy, perhaps in the future I might be interested in posting an article. I am particularly intrigued by how middle class people seem to keep imitating the rich, often financially harming themselves in the process. I believe the poor also do this, perhaps to an even greater extent. Then you have the competing theories on how inevitable that behavior really is, and how to solve the problem. But I haven't had the time to research it fully yet.

[randolfe_]

Hey Skibum

I was there under the end of Feldberg and under Hubbard.

If you Google "Hubbard Monetary Policy" you'll find more academic articles than you could ever read. But here (PDF) is a good article from way back in 1995 by Hubbard about credit channeling in monetary policy, to give you a taste.

[randolfe_]

Also, the program I went through was a dual degree program with UC Berkeley, Haas, so I spent a good amount of time over in Berkeley.

[randolfe_]

Brand

I'd be very interested in that topic. No need to do extensive research before posting an article. Just pull together some reference links you can put in your article and leave the rest to open discussion.

Sometimes earlier batting-around-ideas articles lead to later, intensely researched ones. For example, all my infamous Second Life research really came out of brainstorming about real-estate simulation modeling. We talked about using a virtual world for real estate market simulations, which led me to dive deeply into Second Life's economy, which in turn caused me to write articles that stirred things up quite a bit (and perhaps convinced a few well placed folk to avoid making very costly mistakes).

[Angelique]

Randy,

It took me until now, reading this blog, to understand that LIB and Allah are one and the same. I'm so sorry for what you're going through and completely empathize with you. A friend of mine and I have gone through something similar on a completely different type of board. Someone doesn't like our opinions, and she does everything within her power to make our online lives miserable. Fortunately, like you, Randy, we have lots of support; so her efforts to put us down and control us turn out to be more funny than anything else, but a pain nonetheless.

It's a shame because I really like LIB and wish that the problems between you two could somehow be worked out or miraculously go away, but I know that's unlikely. Besides, it seems like everyone on Zillow is attacking everyone else. The first day I registered there, I was accused of being several other people. I completely freaked out. Let's face it, that board is pretty brutal. :-) All the stalking, name calling, and bringing stuff up from other sites is outrageous.

I understand if you don't want to post this here and won't be the least bit offended if you don't. After all, enough is enough.

[randolfe_]

Angelique,

Welcome to the blog :-) Zillow is brutal. I'm not sure how long I'll hang out there, but it is great to meet a larger cross section of people. A lot of very smart people are intimidated by or just turned off by "bubble blogs". I have to admit, a lot of what passes on bubble blogs even strikes me as tin-foil-hat-ish. For example, it never fails that 1 in 5 discussions ends up in a "build bomb shelters, horde gold, beans and guns" debate. I think I crossed people like "allah" the wrong way early on because I tried very hard to inject fact-based reason into a number of the most contentious debates.

Anyway, I think it's sad that someone like "allah" has to insist on being so intractable because he has put a lot of hard work into his videos and even his web site. But his site is terrible, and will never convince anyone who isn't already convinced. With a little bit of self-introspection he could transform that thing into a very powerful message. Same with his videos: with some thoughtful editing and toning down of the most gratuitous insults he could probably get those aired on major media. I guess I'm not sure if he's doing all the work he's doing just so he can make sure he's always "more hard core" than everyone else, or if he actually wants to convince people. Regardless, were he to read any of that he'd just misinterpret it as an attack, again.

By the way, comments here are not held for moderation. I just count on myself and other authors to yank out offensive stuff when they see it. Feel free to post anything you want here.

I just had an idea to blog about Zillow blogs, lol. Maybe after they've had a bit more time to figure it out and fail or succeed in their own right.