The following is an excerpt from Gary North’s article on Clueless Ben?:
Bernanke is facing a slowing economy. All those green shoots he said he could see in 2009 have begun to die. Unemployment remains high. It shows no sign of coming down. But consumer prices have been flat, which allows him some breathing room. The adjusted monetary base in early November was no higher than it had been in early November 2009. The FED had at long last achieved a semi-stable-money environment. But, like a dog and its vomit, Bernanke could not stay away from monetary inflation.
In his Washington Post article he was his usual Keynesian self.
“The Federal Reserve’s objectives – its dual mandate, set by Congress – are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.”
When, exactly, was the Federal Reserve System told by the government to produce “low, stable inflation”? Here is the Wikipedia summary of the Employment Act of 1978, the famous Humphrey-Hawkins Act.
“The Act set specific numerical goals for the President to attain. By 1983, unemployment rates should be not more than 3% for persons aged 20 or over and not more than 4% for persons aged 16 or over, and inflation rates should not be over 4%. By 1988, inflation rates should be 0%. The Act allows Congress to revise these goals as time progresses.”So, has Congress recently mandated “low, stable inflation”? I am unaware of this. Bernanke did not mention the declaration in which Congress mandated this. I can tell you this much: the Congress of 2011 will not mandate low, stable inflation.
The goal of low, stable price inflation is the goal of all Keynesians. Whenever price inflation falls much below 2% per annum – a doubling of prices every 36 years – Keynesians begin to get nervous. They think that anything approaching stable prices is a harbinger of economic stagnation or even recession. Their motto is: “Better a little inflation than high unemployment.”
This is why Bernanke persuaded nine other FOMC members to accept his program of monetary inflation. Only Thomas Hoenig protested – the lone vote against him for months. When the FED’s program fails to bring either economic growth or low, stable inflation, Hoenig will be the obvious choice to replace Bernanke in 2014. Only his age (64 today) may disqualify him.
The assumption of all Keynesians is that price deflation is always accompanied by economic recession. They do not recognize that a stable money supply produces slowly falling prices in an economy marked by increasing output. Put another way, this scenario is “more goods chasing the same amount of money.” Like falling computer prices, most prices tend in the direction of decline when the money supply is stable.
