Tuesday, November 23, 2010

Weekly Column - 11/23/2010

Here's this week's column:

"The expectation of a general progressive upward movement of all prices does not bring about intensified production and improvement in well-being. It results in the "flight to real values," in the crack-up boom and the complete breakdown of the monetary system." – Ludwig von Mises, Human Action

As a principled non-voter, I watched with amusement as liberals writhed in agony while conservatives rejoiced during another "historic" election. The following day, Ben Bernanke revealed to all how little Congress—and, by extension, if only in theory, the people—has to do with the goings on in Washington. Helicopter Ben felt that inflation was too low; we thus risked deflation, which he believes is the worst thing that could ever happen to an economy. He was insisting on another round of quantitative easing, which is not something one does after consuming too much Taco Bell, but is a fancy of way of saying that he was going to print some money. Since the two trillion he quantitatively eased two years ago was so effective at leaving the country mired in recession, he figured another six hundred billion should do the trick.

The Federal Reserve operates in near total secrecy—ostensibly to prevent the politicization of monetary policy—but we know that in the latest round, William C. Dudley, president of the Federal Reserve Bank of New York, bought treasury bonds from Goldman Sachs, which charges a higher rate than the Fed would receive if it bought the treasury bonds from the treasury. The confusion is cleared up when one realizes that Dudley worked for Goldman Sachs from 1986 to 2007. Just think of Dudley as the banking equivalent of Dick Cheney, granting fat contracts to his pals at Haliburton.

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