Sunday, January 11, 2009

The bond bubble has long since burst: investors, ignore this at you peril

The Fed's December minutes reek of fear. The Bernanke team is no longer sure that stimulus will gain traction in time.

The Fed's "Monetary Multiplier" has collapsed, falling below 1. This is unthinkable. We are in a liquidity trap.

So yes, printing money is not as easy as it looks, but to conclude that the Fed cannot bring about inflation is a leap too far.

1 comment:

MC Shalom said...

Chairman Ben S. Bernanke, Quantitative Easing Can't Work.

In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0.

Hence, the Keynesian paradigm I = S is not verified.

The purpose of Quantitative Easing being to lower the yield on long-term savings and increase liquidity it doesn't create $1 of investment.

In a Liquidity Trap the last thing the Market needs is liquidity. This is why, Mr Chairman, we call it a Liquidity Trap,

Force-feeding the Market won't achieve anything useful.

If short-term risk free interest rates are at 0.00% doesn't that mean that credit is worthless?

Quantitative Easing does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on long-term savings.

Those purchases maintain the demand for long-term asset in an unstable equilibrium.

When this disequilibrium resolves the Market turns chaotic.

This and other issues are explored in my tract:

A Specific Application of Employment, Interest and Money
Plea for a New World Economic Order



Abstract:

This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.

It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.

It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Under Development, Trade Deficits, International Division of Labor, Stagflation, Greenspan Conundrum, Deflation and Keynes' Liquidity Trap...

It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.


A Credit Free, Free Market Economy will correct all of those dysfunctions.


The other option would be to wait till, on the long run, most of our productive assets get physically destroyed either by war or by rust.
It will be either awfully deadly or dramatically long.

In This Age of Turbulence People Want an Exit Strategy Out of Credit,

An Adventure in a New World Economic Order.

We Need, Hence, Abolish Interest Bearing Credit and Cancel All Interest Bearing Debt.



Exit Strategy Out of Credit

A Specific Application of Employment, Interest and Money
[Intended for my Fellows Economists].



Press release of my open letter to Chairman Ben S. Bernanke:

Chairman Ben S. Bernanke, Quantitative Easing Can't Work!


Yours Sincerely,

Shalom P. Hamou AKA 'MC Shalom'
Chief Economist - Master Conductor
1776 - Annuit Cœptis.