His defense is about as wacky as they come. Mankiw writes:
Mr. Bernanke has worked tirelessly to shepherd the economy through the worst financial crisis since the Great Depression, and yet, for all his efforts, seems vastly underappreciated.Tirelessly? At times Bernanke has caused the money supply to grow by 25% on an annualized basis, at other times it has slowed to near 0%. This is perhaps tireless work, nevertheless this wild money manipulation is the direct cause of the current volatile economy. Mankiw may think Bernanke's work is "underappreciated," I think Bernanke's mad money manipulations are hardly understood and there is nothing to appreciate about what he has done.
Mankiw goes on:
....the signals in the financial markets are reassuring. The interest rate on a 10-year Treasury bond, for instance, is now about 2.8 percent. A 10-year inflation-protected Treasury bond yields about 0.4 percent.But then he reports correctly that the Fed has been buying 10-year bonds:
The difference between those yields, the so-called “break-even inflation rate,” is the inflation rate at which the two bonds earn the same return. That figure is now a bit over 2 percent, a sign that the market does not expect inflation in the coming decade to differ much from that experienced over the last five years.
The Fed used its main weapon against recession — cuts in short-term interest rates — aggressively as the depth of the downturn became apparent. And it turned to various unconventional weapons as well, including two rounds of quantitative easing — essentially buying bonds — in an attempt to lower long-term interest rates.So Mankiw is admitting here that the Fed distorted the interest rate market in long-term Treasury bonds by buying them. Got that? The Fed drove rates down on Treasury bonds, which completely blows up Mankiw's contention in the earlier paragraph that I quote, where he uses that same Fed distorted bond interest rate to prove price inflation is only a "bit over 2%."
In truth, we don't know what the rate would be if the Fed hadn't intervened. It would have most assuredly been higher, we just don't know by how much. Further, the Fed's driving of short-term rates lower, also has an impact on long-term rates. Thus although we can't know for sure how much of a distortion has been caused over all, whenever the Fed has stopped manipulating rates, they tend to go up by hundreds of basis points. In other words, Mankiw couldn't be more wrong in his contention that "the markets" suggest inflation 10 years out will only be around 2%. The market is in fact being manipulated by the Fed and we don't know where unmanipulated markets would trade other than much higher.
Bottom line: NYT continues to publish work from economists, who really, on a very basic level, don't know what the hell they are writing about. And, I shudder to think what recommendations Mankiw is giving Romney.
I love how the elitists and the statists can state (with a straight face I'm sure) that it's their associates who aren't appreciated.
ReplyDeleteI'm sure it never enters their minds that us "little peoples" efforts and lives are what fails to be appreciated in their self-aggrandizing, self-serving scheming. After all, we're just looked upon as mere chattel in the course of their "policies".
No, I don't feel sorry for Mr. Bernanke and his ilk one bit. As a matter of fact, they, like the rest of us, get what they deserve.
re: Bernanke policy wild gyrations -
ReplyDeleteCan you say 'Regime uncertainty'??
Thanks, Bob Higgs.
"a sign that the market does not expect inflation in the coming decade to differ much from that experienced over the last five years." He is switching the CPI for inflation. It would be correct if he stated, "The market does not expect the CPI to differ much from the last five years." We all know the CPI downplays inflation. Look to gold for market signals in inflation.
ReplyDelete"shepherd the economy"
ReplyDeleteHe is a Statist psychopath.
"The political terrorists broke your leg and are now working tirelessly to give you a crutch. Our efforts seems vastly underappreciated"
ReplyDeleteI love how the elitists and the statists can state (with a straight face I'm sure) that it's their associates who aren't appreciated.
ReplyDeleteI'm sure it never enters their minds that us "little peoples" efforts and lives are what fails to be appreciated in their self-aggrandizing, self-serving scheming. After all, we're just looked upon as mere chattel in the course of their "policies".
God larry get off the cross. Monetary policy exists to help you keep your damn job, not to feed some power trip you imagine everyone in power has. The guy is a dry academic, he could care less about your obnoxious whining, insignificant accounting business and authority issues.
Your comment will be visible after approval. God conservatives, but especially libertarian ones always have to insulate themselves from criticism because they know how infantile their worldview is.
ReplyDelete