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An Inconvenient Fact

Inflation is always and everywhere a monetary phenomenon – except in the United States...?

IT STRUCK ME as true "Theatre of the Absurd" when Ben Bernanke, soon-to-be-chairman of the Federal Reserve, paid direct homage to Milton Friedman back in Nov. 2002 to mark the economist's 90th birthday, writes the Mogambo Guru for The Daily Reckoning.

Namely, Dr.Bernanke paid homage to one of Friedman's theories, that the Great Depression could have been avoided if the Fed had plowed enough money into the economy. Bernanke thanked Mr. Friedman, and admitted that the Federal Reserve had made a mistake in the 1930s, vowing that the Fed would never again make that mistake.

Well, now we have the results of that promise, as indicated by the essay "Monetary Stalinism in Washington" by Hossein Askari and Noureddine Krichene and posted at They write:

"Monetary policy as practiced by the US Federal Reserve for the past decade is but a form of financial Stalinism, forcing ridiculously low or negative real interest rates, with catastrophic results that are now plaguing the world."

What kind of catastrophes? "Pushing housing, food, and energy prices to prohibitive levels, and triggering food and energy riots in vulnerable countries. It has undermined the Dollar and made the US highly dependent on foreign financing."

The authors also note that Friedman's theory, and the one that Ben Bernanke has sworn to cling to, is "that if the Fed had injected sufficient liquidity during 1929-1932, it would have prevented thousands of banks failing, taking everything else down with them.

"Bernanke is determined not to let that mistake happen again. Consequently, his response to the financial crisis has been a blind and aggressive monetary policy in [the] form of negative interest rates, massive liquidity injection, and massive bailouts, but that they won't make that mistake again."

As to the chances of that succeeding, they write, "It would appear that Bernanke has read a great deal about the Great Depression of 1929-1933 and perhaps very little, or nothing, about the German hyperinflation of 1920-1923."

Even in real time today, the Fed chairman could read instead about the horror of Zimbabwe. But no!

Does Bernanke think that monetary inflation produces price inflation everywhere except here in the USA? Hahaha! I don't remember Mr. Friedman saying that!

The funny part is that Milton Friedman is also the guy who said that inflation is "always and everywhere a monetary phenomenon," meaning that higher prices follow an expansion in the money supply. The careful observer will notice, however, that Bernanke does not mention this inconvenient fact, since he is busily colluding with the Treasury Secretary and other central bankers around the world to generate horrific inflation through massive expansions of the money supply...expansions that will cause untold misery for billions of people simply so Bernanke et al, in some laughable comedy of low-IQ desperation, can ameliorate their tragic incompetence and ludicrous economic theories.

The funny thing, say Askari and Krichene, is that with a fiat currency and the ability to create immense increases in the money supply, "The US economy in 2007 had no resemblance to either the institutional setting of the Great Depression nor to the immense role and expansionary stance of fiscal policy. Namely, today, there are institutions that can prevent bank runs, such as the Federal Deposit Insurance Corporation (FDIC), while the federal and state governments (both relatively far bigger than 1929) are running large deficits that should preclude a deep recession, especially if they adopt appropriate policies."

All of which is to try and buy their way out by printing money and having the government buy everything in sight, which will fail, and will result in "high inflation and rising unemployment."

In short, "There is no basis for making sound financial or economic forecasts. No rational entrepreneur can undertake investment plans under such uncertainties. Foreign investors are scared of inflation and a depreciating Dollar and are rushing to Gold Bullion and safer currencies. It is at best a wait and see attitude."

I am perplexed. How can foreign investors be "rushing to gold" while maintaining a "wait and see" attitude? But then, there are many, many things I don't understand, mostly about social graces or why children are so damned clingy. But the one thing I actually DO understand is that this economic bailout stupidity will end badly for everybody that does not have Gold Investment and silver, because if there were a way for a government to successfully and painlessly buy its way out of massive indebtedness, then some overly-indebted government before now would have thought of it long before now!

They all attempted the exact same damned thing, and they were all ruined by it, although they tried everything.

Everything except the one thing that would have fixed everything – which would be to immediately adopt a gold-standard money, which is eternal, which is why people who own gold and silver will have a sort of financial immortality, too.

Unfortunately, some other things never change either, in that government morons and greedy bankers are eternal.

Hahaha! We're so freaking doomed!

The angriest guy in economics, the Mogambo Guru is Richard Daughty, general partner and COO for Smith Consultant Group, serving the financial and medical communities. The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it – has been quoted frequently in Barron's, The Daily Reckoning and other fine publications.

See the full archive of Mogambo Guru articles.


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