FT: ‘Helicopter Ben’ risks destroying credit creation - By Bill Gross
“Helicopter Ben” Bernanke is a second-generation pilot. As he himself acknowledged in his now well-known 2002 speech, the term was an original of economist Milton Friedman.
Whether father or child, the concept of showering money over national economies to combat deflation has been an accepted principle of monetarism for decades. A helicopter, however, is not your average aeroplane, and the usual laws of aerodynamics do not necessarily apply in all cases. Similarly monetary policy at the zero interest rate bound introduces a new dynamic that may conflict or even reverse standard logic that lower interest rates across the sovereign yield curve are everywhere and always stimulative to economic growth.
This potential paradox arises not just from observation of the Japanese experience over nearly two decades, but from an analysis of our modern-day financial system and its potential inadequacies. Fractional reserve banking, where only a portion of bank deposits are backed by hard cash, as well as unreserved collateral-based lending on overnight repo have allowed for an expansion of credit beyond the bounds of a central banker’s imagination.
- Hussman Weekly Market Comment: Topping Patterns And The Proper Cause For Optimism
Link to: Topping Patterns and the Proper Cause for OptimismNotes to the FOMC The following are a few observations regarding Dr. Yellen’s testimony to Congress. The objective is to broaden the discourse with alternative views and evidence, not to disparage...
- Bill Gross – February 2013 Investment Outlook: Most ‘medieval’
Link to: Most ‘Medieval’So for those of you who don’t live in Washington State or Colorado or others who are a little miffed at this example, let’s just put it this way. P/Es of 3 or P/Es of 15 or P/Es of 0 are intimately connected to the amount...
- Hussman Weekly Market Comment: Superstition Ain't The Way
“The problem with QE is that it works in practice but it doesn’t work in theory.” - Ben Bernanke, Outgoing Federal Reserve Chairman, January 16, 2014 "When you believe in things that you don't understand, then you suffer. Superstition...
- The Myth Of The Money Multiplier - By Steve Keen
Three Business Spectator readers contacted me directly about one topic last week – bank money creation, and how bank reserves work. Following an old journalism adage that three direct enquiries about a topic from the public means that everybody’s...
- Annaly February Commentary
In this environment, we are reminded of a speech given by Ben Bernanke in November 2002 when he was still a Fed Governor. The speech, entitled “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” laid out the rationale for lowering Fed Funds to...