My Own Summers vs. Bernanke Rebuttal, With Some Colorful Rants

I have been holding on to this long rant deciding whether to include my substantial rants that are quite out... In the simple desire to move on I decided to just put it all out there... 

This writing is a response to the publicized back and forth between Larry Summers and Ben Bernanke through their respective blogs which I firs read about here:

Summers: The essence of secular stagnation is a chronic excess of saving over investment.  Check

Summers: In situations where target saving is important, reductions in rates may increase rather than decrease saving, exacerbating imbalances.  Check

Summers: I think that it will be hard to escape the conclusion that household debt grew at an unsustainable pace in the decade before the great financial crisis and that this was an important spur to growth.  Check

Mind you Summers, another lifelong academic with no real world experience operating in any industry outside of education (or non-profit “think tanks” that seek to directly influence legislation by hiring high profile and Ivy League academics to “vilify” their agendas), was an Integral Player and heavily influential in the deregulation game.  During his entire tenure with the Treasury, he became Wall Street’s whipping boy. Within less then a decade in the early 2000’s deregulation, which is arguably the core reason for the bubble / unsustainable credit / derivative expansion that ensued, actually picked up steam under advice from people like Larry Summers.  He was instrumental in further influencing a hands off approach towards “managing” the explosive growth in unregulated derivative products built directly on the backs of individual borrowers in the US and elsewhere (wherever “offloading risk” became the core ideology of “lenders” the world over) and not unsurprisingly, after the collapse of credit markets around the world, ended up back at government service in 2008 to make sure no branch of  the government, regulatory or otherwise engaged in ANY reigning in of the “regulated” financial industry nor sought to disband, regulate or otherwise force under regulatory framework the multi-trillion dollar “unregulated financial industry”. 

Summers argues governments can expand debt “indefinitely”:  “As long as a public investment project yields any positive return it will generate enough revenue to service the associated debt.”

Yet Summers completely ignores the exceptional debt burden currently held by nearly all the major industrial economies including China, which though not a fully “developed” industrial economy, is vastly influential in global economic reality due to its sheer population size and explosive government orchestrated “growth” over the past several years.  As Bernanke goes on to retort, this is important as the money printing and excessive spending shows declining rates of return over time.

Summers again on debt spending: The case for expansionary fiscal policy in economies with very low real interest rates is of course magnified if there are reasons to doubt that the central bank can act on its own to raise inflation expectations.  It may well be that in situations where the interest rates are trapped near zero –  such as those prevailing in Japan and Germany – expansionary fiscal policy reduces real rates by raising inflationary expectations.

So do you REALLY want this kind of inflation?  Fiscal spending increases, ie; government spending be it infrastructure or otherwise, is not sustainable long term, esp. if the government already carries very high debt burden.  So ramping up inflation via monetary and fiscal policies with NO resulting increases in private investment in the economy will create the worse kind of inflation, not unlike that currently happening in Brazil.  So Really?  Do you want the kind of inflation by printing money and government spending with no private investment and or increases in productivity?  You are in for a real mess… So someone here needs to explain the different types of inflation and what kind of inflation is or would be considered “normal” or “desirable” vs. inflation for the sake of inflation!!!!

Summers back to “secular stagnation”:

Indeed, the lower level of rates, the greater tendency towards deflation, and inferior output performance in Europe and Japan suggests that the spectre of secular stagnation is greater for them than for the United States. 

Now, any person with some understanding of the economic reality of Europe and Japan vs. the US would be able to understand right away why the “spectre of secular stagnation” is greater in the former.  Demographics, labor market flexibility, immigration dynamics, capital flows (real and financial) and competitive markets all greatly differ in the US vs. Japan/Europe.  It simply does not matter how much money they print in Japan or Europe, this money will not solve problems that are / were not based on money in the first place.  Devaluing their currencies against the Dollar has run it’s course and China is about to go through a major currency adjustment as they get killed by their indirect dollar peg which in the end, with Brazil, Russia and several other mid-tier industrial producers all trying the same game will result in nothing more then an across the board debasement of currencies everywhere in a race to the bottom NOBODY has a clue where or how it will end.

Summers pointless statement: Global mechanisms that concentrate on causing borrowing countries to adjust without seeking to shrink the surplus of surplus countries will tend to push the global economy towards contraction. 

This statement is straight from the mouth of an Academic for sure.  What on EARTH are you going to do to “shrink the surplus of surplus countries”?  Tell them to spend money?  The ONE THING that is in the process of happening, China’s lead on creating the Asian Infrastructure Investment Bank (Remember the US was a the only major nation with an undestroyed economy and a major creditor back when the IMF and World Bank were created and virtually dominated by the US from their inception, even though the US is no longer a major creditor nation), leads to headlines like this one from the Guardian:  “China's growing support to lead multilateral lending bank worries US”.  Why doesn’t Mr. Summers recognize directly how important it is for the nations around the world that have built up massive foreign reserves through “excess savings” start putting this money to use around the world instead of having Washington look like it’s being run by the complete idiots it is!!!

Summers does recognize the futile exchange rate policies: Policies that seek to stimulate demand through exchange rate changes are a zero-sum game, as demand gained in one place will be lost in another.  Secular stagnation and excess foreign saving are best seen alternative ways of describing the same phenomenon.

Yet Summers only uses the “demand” argument here, failing to estimate the various other negative repercussions of competitive exchange rate reductions.  Calling every country’s attempt to debases it’s currency so it can “export” it’s way out of economic malaise (thinking increased exports will lead to further investment) while at the same time boosting inflation with the intent of devaluing their current debt burdens, a “zero sum game” is being VERY generous to what is likely to be a global economic disaster!

Summers Final lack of solution: So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment.  If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. 

This is Summer’s final academic statement that just blows me away!  “Chronic excess saving” is hilarious thought.  Watching corporate America take huge amounts of their “earnings and cash flows” and plow that money into buying back their stock instead of investing it is heartening.  This is a major transfer of wealth, the money spent on buying products generating ever larger profits as the oligopolization of the American economy continues to increase prices (under the radar as the official inflation numbers are massively distorted, go buy a gallon of paint and tell me why it is $30 vs. $10 fifteen years ago…) and profits are simply used to buy back stock which gets plowed back into the stock market.  Meanwhile, nearly free money exacerbates this problem as central banks mop up a huge chunk of government issued debt leaving “investors” looking anywhere for yield.  Companies not only use their current cash flows to buy back stock, but literally leverage their companies by borrowing ever increasing amounts of nearly free money to buy back their stock at elevated prices.  While great for the upper echelons of corporate management who get ever richer by cashing in on their stock options pocketing billions of dollars a year in personal “profit”, the average “saver” gets zero return on their money, resulting in the fact that they are actually saving MORE to counter the loss in earnings they would have from interest. 

In a “perfect” economy, based on pure economic theory, people would be spending all their money today as they get NOTHING from saving it.  But economic theory be-dammed, because in reality, the aging populations of the developed world have been saving MORE since they are playing a loosing game against the push by central banks to increase inflation while their cash savings yield them zero return nominal return.  Now tell me, supposedly “savers” participate in investing when the institution with which they place their “savings” lends it out and at positive rates and pays them interest earnings for using their money.  But this rationale is completely broken, it simply does not happen any longer!! The banks just keep all the profits, including the profits from their 15% credit cards, fee generating income, investment banking, mortgage lending etc.  Want a yield, you better to buy their stock and hope they don’t go belly up or another financial crisis does not wipe out your investment.  Then there are always the crowdcube.com models where you can invest directly in small businesses with your own money. 

The thinking goes, in a zero rate environment corporate entities would be happy to borrow and invest in nearly anything able to earn return higher then ZERO.  Well, the financial industry is taking the trillions of newly “created” money and buying nearly anything with positive yield with abandon, meaning lots of worthless paper can float around at exceptionally low yields right now.  Yet, the average Joe does not participate directly in this game as his “investment holdings” are more than likely tied up in some retirement account where he has no idea how much of it is chasing yields in a new debt bubble that is likely to burst taking whatever he managed not to loose or regain since the last financial collapse and wiping it out again along with whatever he contributed since then. 

Where is the investment?  Why invest?  The developed world has nearly zero population growth and a massively aging bulge in their population while the rest of the world, where populations are rising rapidly, people are still poor, their countries still lack industrial capacity, infrastructure investment, technology and or any of the other factors needed to participate in “development” while most of them are still having their natural resources stolen from them for pennies on the dollar with no secondary industry even in existence to turn these recourses into finished goods at higher value and thus raise the incomes of their populations.   Where are Summers tangible recommendations on how to remedy this situation? 

Screw trying to force feed investment in mature economies where underlying demographics and consumption trends are declining!  How does the world get growth, investment, consumption and inclusion into the global economic machine in the 3/5 of the population of the world that has been left to rot?  Where are the models that state explicitly that the global economic “norm” that we have lived under for to long is broken?  The planet is at its wits end ecologically and economically.  Growth and Consumption models are broken. Corruption rules far too great a number of the planet’s population (inclusive of many “developed” nations). The global elite are increasing their hold on resources while directing puppet governments they control to abandon their responsibilities to their citizens and spend great amounts of resources and lives on militaries to protect them and move forward their agenda, which has absolutely no productive value.  Most of the war currently happening is a direct result of policies of the developed world which supported corrupt governments for political purposes, exploited their resources, oversaw almost no productive investment purposefully so they could force feed their global brands and products down the throats of the increasingly impoverished people while exploiting their corrupted neo-colonial governments.  You want investment?  You want growth?  You want a return to a “market based” economy where supply and demand work without massive intervention by the wheels of central banks with their capacity to “print” massive amounts of money in the name of “stimulus”?  Then the developed world needs to STOP trying to instigate growth where it is not organically present!!  The developed world needs to start the process of sharing / transporting / instigating development in the underdeveloped world.  Of all nations, China is taking a lead with the new AIIB and this is a good step in that direction.  China, a nation who’s “growth” has been completely orchestrated not unlike the communist / socialist governments rapid growth after WWII; State led, state driven and state directed with spectacular results for a short period, extended of course by China also taking over near a quarter of the global dirty manufacturing with disastrous ecological and environmental results (But that is just fine for an expendable few hundred million people so the developed world elites can have their huge profit margins and their citizens cheap junk to feel rich right?).

Meanwhile, it’s time to the stagnant developed nations’ corrupt governments start recognizing that the “profits” made from corporations either are put to good use or confiscated for the public good i.e.; to pay off the massive debts the irresponsible corrupt governments have accumulated while creating policies to ensure social stability, security and equal deliverance of government services and investment.  The debts government have accumulated, especially since the global financial failure, is directly on the backs of the citizens who are on the hook for trillions after bailing out the financial elites while for the most part the “productive” corporate entities also had a free ride, many having been bailed out themselves!  It’s time this all gets restructured NOW. 

Recognize people that excessive profits, i.e.; profits that are not put to good use, invested etc, are nothing more than a “tax” on the citizens who purchase those products with which the public is NOT seeing any social benefit or “welfare” as economists like to say.  Will you hear Summers or Bernanke say out loud that the models are broken?  That we need a massive rethink of what it means to allow unfettered consolidation and profits from fewer and fewer players who are enjoying massive rewards on the backs of the vast majority of citizens who are NOT seeing the benefits spelled out by so many economists in their pretty little models of how society will benefit over time as capital increases productivity allowing workers higher wages and more leisure etc…

If we don’t do something now or very soon, trust me, there will be backlashes from society and elements of society who will propose far more drastic measures and far more destructive proposals in the future if the current “institutions” on all sides of the debate don’t start coming up with tangible solutions now!!  (I would argue this is at the core of most global conflict since at least 2001.)

I would propose a global developed world corporate tax rate that is collectively agreed upon, that no nation is able to undercut and that completely eliminates the incentive for corporate entities to skirt their responsibility to pay taxes on the profits they make.  It should be a crime for any corporate entity to use gimmicks and supply chain accounting to hide, transfer or otherwise manipulate their profits to avoid paying tax in any given jurisdiction.  Corporate entities should be made to realize they operate via corporate charters that are granted by legal entities in jurisdictions they operate and that part of their allowance to do business and answer to shareholders and the like is an understanding that they have a social obligation to operate their business ethically, pay wages directed by law, pay tax on their profits and understand that the responsibility of the governments they operate under are not free, that caring for the social welfare of the population and investing in the infrastructure that benefits both the corporate entity, their workers and the people they “serve” are all connected.  To act in any way that is contrary to the good of the citizenry where they operate is criminal activity and they risk loosing their corporate charter to operate.  This is to be a rebalancing of the responsibility of corporate entities who operate with the blessing of the state / citizens of the world they operate in with the needs of the citizens governments to finance the social welfare of those citizens.

I would criminalize extraction exploitation on a global scale.  Institute a minimum royalty for all resource extraction including agriculture that would be to the benefit citizens of the nation where the extraction is taking place.  In addition, global environmental / ecological rules would be enforced on any an all companies operating in the extraction industry.  Global resource accounting would identify in real time all resources that exist and international agencies would work proactively with local governments to manage the proper extraction of resources, helping to set up local legal structures and monitoring systems to make sure compliance is universal.

I would set up a global database of every hectare of arable land on the planet and begin working with every government on the planet to establish best use guidelines and practices for the land, encourage the application of agricultural technologies suitable for each region, outlaw the use of any genetically altered seed or product that involves the use of mass pesticides and instead focus on local varieties of  agricultural production that takes advantage of that regions soil, environment, available technology and resources. For the McDonalds or the world that rely on homogenized agricultural products on a global scale, this would be allowed no longer.  Diversity in Agricultural output would be the rule and global homogenization of global food sources no longer encouraged or allowed to be dictated by any one or group of corporate entities for the benefit of their “business model”. 

I would create a global arable land database, inclusive of potential for fisheries and livestock, for every nation / common geographic area taking in consideration of the population of every nation and use all resources available from international agencies to plan and coordinate a strategy to make sure every person on the planet has access to a minimum daily calorie / nutritional allowance of food, with all priorities directed toward efficient local production vs. cheap developed nation subsidized products undercutting the local market’s production.  In this effort, food would be sourced locally as possible, with strategies to manage the import / growth of food sources, emphasis on accomplishing the daily nutritional needs, focus on plant based nutrition vs. animal nutrition and vast application of the best known irrigation / organic fertilization / farming techniques known and applicable for the specific region.  The effort would be coordinated with local governments and composed entirely of local citizens who would be trained, financed and supplied with all the necessary inputs needed to successfully operate i.e.; technology transfer and technological expertise on the ground.  Ideas like the patenting of seed that is not recyclable through the use of seed from the crop grown would be strictly outlawed and everything possible would be done to ensure continued success of all initiatives to meet global nutritional standards.  This initiative would include developed nations where for all intensive purposes, the food abundance and massive waste of the “food industry” that takes place in the developed economies (not to mention the massive “throw away” of food by individual citizens) would be accounted for either financially or otherwise and direct fines would be imposed as a financial penalty that would be used to finance agricultural and nutritional needs in deprived parts of the world.

Every vehicle sold for “personal use” that does not meet a pre-set qualified global standard of emissions, fuel economy, recyclability etc. would be subject to a direct and immediate “tax” that would be used to dramatically expand renewable, non-fossil fuel energy the world over.  This “tax” would also apply to the construction of housing, commercial facilities and be imposed on corporate entities in the business of physical productive activities who do not meet a global environmental standard.  The era of cheap disposable products would be declared OVER.  Every durable good must be repairable, recyclable and meet minimum life cycle requirements, period. 

Every vehicle transportation system in the world would be reworked.  There would no longer be millions of miles of roads that allow any two vehicles to travel at high rates of speed towards each other in opposite directions with nothing but a painted line between them.  The idea that a supposed intelligent race of beings would allow such a thing to happen is bazaar and obscure. To continue to propagate such ignorance is beyond comprehension.  It should have been reconsidered the moment a motorized vehicle came into the hands of a citizen for common use.

There are additional global initiatives I would begin working on and will embellish on later…

Now on to Bernanke’s remarks:

Bernanke Comment on Summers Solution: Larry’s proposed solution to this dilemma is to turn to fiscal policy—specifically, to rely on public infrastructure spending to achieve full employment. I agree that increased infrastructure spending would be a good thing in today’s economy. But if we are really in a regime of persistent stagnation, more fiscal spending might not be an entirely satisfactory long-term response either, because the government’s debt is already very large by historical standards and because public investment too will eventually exhibit diminishing returns.

Well Bernanke puts this well enough.  Now where are the alternative solutions?

Bernanke Learning MIT: As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades.

Of course this is true when and if it is expected the investment you make is going to have some utility!!  Hello! The word “almost” is a VERY big word here.  Just because the government could borrow at zero percent vs. say two percent does not clear return on investment make! 

So why is investment at historically low rates?  Clearly, companies operating at the duopoly or oligopoly level, the majority of sectors in the American economy, see the reality.  They are already making or importing products on such a large scale at such a low cost and selling it at increasingly profitable prices, that there is little left for them to do to sell more, thus they just buy back their stock with their earnings (there are plenty of economic models for this phenomena).  Since the collapse of the oil price, not even high energy prices are encouraging them to invest in say plant or energy efficiency right now…  Outside of the technology area, where very low levels of “physical” investment can result in very high valuations and profit margins, and large scale production industries such as Aerospace and Automobiles and for a while areas like oil drilling, shipbuilding and mining, investment is on the decline.

Not enough of the general population have come to realize how much damn money the companies are making selling nearly everything to them at increasingly high developed world prices while their cost of production lies in the underdeveloped world (one of a few emerging exceptions is beer, thank God).  Once people figure out how cheap machine tools are (thank you Alibaba), and how much money they could make producing and selling everything from underwear to peanut butter to house wears without going through the oligopoly retail industry, more people may start investing and producing.  There are already cottage industries all over the US making and selling everything from organic and gourmet foods like ice cream, chocolate and other delectabl's to soap, lotions and other consumables. These people are investing, producing and in some cases growing and building sustainable businesses.  They figured it out.  Perhaps they will make higher quality products and sell for a premium and perhaps their consumers will spend more on quality and less on quantity and this shift will create tens of thousands of cottage industry producers of high quality goods sold directly to consumers who will be happy knowing that consumption of quantity vs. quality was futile and wasteful and degrading to the environment… Who knows?  But it is worth governments putting money and resources behind this initiative.  Education, training, cooperative business starting rules and regulations, flexible labor laws and tax incentives are all worth while.  This might sound pie in the sky like but the potential is there and is happening and has happened on some levels already.  In addition, these cottage industries are “making a living” i.e.; beating the “ wage trap” created by corporate America that limits one’s earn-able income, where lacking a secondary education, being unable to pass the on-line corporate drone psychology test, or being one of the 65 million Americans with an arrest record, means attaining a decent salary is becoming a remote reality. 

Bernanke Note on equilibrium negative real interest rates: I concede that there are some counterarguments to this point; for example, because of credit risk or uncertainty, firms and households may have to pay positive interest rates to borrow even if the real return to safe assets is negative. Also, Eggertson andMehrotra (2014) offers a model for how credit constraints can lead to persistent negative returns. Whether these counterarguments are quantitatively plausible remains to be seen.

Bernanke on bubble instigated full employment: They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output.

It’s a crazy idea that only at the end of a cycle do we have a “bubble” hence the cycle is not a “bubble” cycle… Let’s just say that with any idiot with no formal economic education could see the severity of cycles in the economy over the last 30 years or so were all financial in nature, driven by Wall Street gamblers and speculators, and all involved bubbles in various sectors of the economy.  The latter part of the 1980’s, 1990’s and 2000’s were all cycles that at the end of each, resulted in massive transfers of wealth to the top, exaggerated more intensely each time, with each cycle involving ever increasing amounts of debt held by both households and industry (and government with the exception of the late 1990’s balanced budget on the Federal level, a gift horse for an aging nation that was quickly squashed by the reckless and mindless policies of the Bush presidency) and ever more drastic measures taken by the central banks to “smooth” over the excess without allowing or forcing structural change.  In fact  more effective regulation, resulting in ever larger bubbles and collapses.

The time has long since come for the trillions of dollars in unregulated financial capital sloshing around the world looking for “yield” to be reined in, shut down, regulated and or completely disbanded and forced into productive use.  The money being printed by the central banks is pointless.  There is plenty of money, it is all highly levered into “financial instruments”, being recycled through the revolving buybacks and subsequent stock purchases and being used to gamble and speculate. The Trillions of “wealth” tied up in pointless paper and derivatives instead of being put to productive use is at the core of the lack of investment on a global scale.  Using money to make money without ever producing anything tangible never ends well. 

What the central banks did during and after the credit crises and continue to do today will be marked as the biggest mistake in human history.  The global credit “reset” had started back in 2007-09.  This was badly needed.  The ONLY money central banks should have printed was that which was lost through the insolvency of nearly all major banks by actual individuals and companies who had stored money in insured bank accounts.  The bailing out of money markets, which nearly all had been so mismanaged they were essentially on their way to offering an unprecedented “haircut” of several percentage points or even more to the individuals and institutions who kept trillions of dollars stored there was a huge mistake.  Recapitalizing insolvent overly levered banking conglomerates was a huge mistake.  Handing trillions of dollars to bank and non-bank institutions with explicit instructions to provide liquidity to the multi-trillion dollar unregulated hedge fund and private equity markets was a huge mistake. Allowing dozens of insolvent non-bank financial companies, from credit card issuers, to Wall Street institutions to commercial and individual credit companies to become bank holding companies to give them access to Fed funds was a huge mistake.  All the Central Banks have accomplished, is to allow trillions of dollars in levered “financial paper products” to remain in circulation, then allow the debt bubble to inflate even further along with the derivative markets.  Printing ever more money is only aiding and abetting the continued accumulation of non-productive leverage for no good reason! 

As of this writing the amount of outstanding bond debt of American Corporations has literally doubled since 2008 making total corporate debt now nearly 80% of US GDP, the value of non-revolving debt held by Americans has gone up by over 2/3rds, the approximate value of financial derivative products has grown by at least 1/3^rd bring the total global exposure to over $700 trillion! Meanwhile the debt burden assumed by the non-presumptive citizen pawns through their irresponsible governments as they protect the “wealth” of the elites has grown exponentially as well (8 trillion or up 80% from 10 to 18 trillion in the US alone). 

It is 2015 and the global financial system functions more like the 19^th century from the perspective of capitalistic games between gambling men who wield their financial power from the small financial centers of the world, where nobody is held accountable, money floats around with no national allegiances or responsibility to any citizens on the planet and where humanity is just considered fodder for making as much money as possible.  Crash a currency, sure, inflate a commodity, sure, crash a commodity, sure, flood a market with short term cash, sure, suck the cash out overnight, sure, it simply does not matter what destruction these actions wrath on humanity as long as the global elites make their desired 8-10-15-20-25-30% or whatever they can on the backs of whoever they can for whatever reason. God forbid any nationality try to tax them for what they do! Meanwhile “economists” sit around trying to recreate economic models by studying the behavior of people in villages in remote areas of Thailand.  Yea, a whole lot of good this does the global economic system! 

Bernanke Academic statement is not worth salt. He says, “The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad; the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports.”  What a load of academic hogwash.  Is he aware that the entire global financial system is currently rigged?  To go back to some academic economic model that assumes a “normal” functioning economic system, where the “exchange value” or the dollar would be affected by his suggested actions is INSANE.  He is talking out of the side of his mouth! The EU and Japan are both highly manipulating their exchange rates through massive monetary policies.  Does he really think “US households” are capable of anything other then borrowing as much money as humanly possible at very low rates and consuming as much as possible now?  This is exactly what the central banks are encouraging!! They are not encouraging “saving and investing”!! Besides, for the last 30 years or so, all US firms have done is invest abroad!  They have built or shipped wholesale factories and production “abroad”.  They have expanded their operations, purchased companies, transferred their monopoly rents, outsourced massive amounts of their production (Boeing anyone?), moved wholesale their customer service operations… basically every possible way under the sun American companies have “invested abroad”, many times to the detriment of the local economy (telecom companies buying assets around the world with their monopoly rents while the biggest thing to ever hit the telecom world grew like mushrooms in their back yards in the 1990’s, hello!). And what is happening to the dollar?  Does this man even know that the dollar is a “reserve currency” where it really does not matter what the US Fed reserve thinks it can do to “manage” the economy.  The reality is there is no measurable amount of fiat currency that can be printed to bail out the global debt bomb that burst for a minute in 2008/9 and will burst again imminently.  There are almost no policies that can be “initiated” that will have predictable effects on exchange rates / investment / consumption etc. when every “developed” nation’s central bank is pursuing the same reckless debt expansionary policies.  Just forget about it!

And this is Bernanke’s hilarious example: “For intuition about the link between foreign investment and exports, think of the simple case in which the foreign investment takes the form of exporting, piece by piece, a domestically produced factory for assembly abroad. In that simple case, the foreign investment and the exports are equal and simultaneous.” 

(WTF?  If exported our factories as “investment abroad” what good would it be to have a lower exchange rate?  We would not be producing anything any more to make the lower exchange rate work for the good of the economy!!  We would be importing finished products made in foreign countries with the factory we exported to be purchased by people making a dwindling amount of money from shitty retail wages. Sound familiar?  Where do these guys get their common sense?). 

Irrespective of whether the company is a US company or not (think Apple making $600 phones overseas and importing them to the US instead of making them here, keeping both the profits and production out of the US) we have been gutting our economy for decades while at the same time exporting our technological know-how (and even our lower productive factory machinery as Bernanke suggests) and now every nation in the world is “exporting” everything back to the US, which is just churning the same money over and over, bubble to bubble, debt to debt, to buy the products with ever dwindling amounts of income allocated to the largest historically economically strong segments of the economy while each churn turns over another huge chunk of that pie to the richest 10% who are in the position to benefit from the debt/churn machine.  I truly love when academics set up “examples” that expose how clueless they are to what they are saying or how inappropriate their examples are.

Notes:

1)      How many more people would care to drive through the Rocky Mountains if they were leveled for a road through?  Would there be any increase in productivity from the mountain pass?  Would the savings on fuel actually lead to any social benefit that is measurable or would it just leave a little more money for the person driving to be able to buy a hot dog and coffee on the way?  How would the government ever see a return on such expenditure?  Would the expenditure’s short term multiplier effect have any lasting benefit?

2)      per year: 35,000 average shares exercised, 7425 exercises, $24.88 average profit/share 1996-2003

• On a Side Note:

From article:

Time preference reflects the relative valuation placed on goods at an earlier date versus a later date. While current goods (including cash) should always have a higher valuation than future goods, time preference declines as an economy becomes wealthier, i.e. the proportion of income devoted to current consumption falls versus that devoted to saving/capital accumulation.

On one hand, their policies seek to increase current consumption, at the expense of long-term saving & capital accumulation, in an over-leveraged world. This increases time preference and would normally equate with higher interest rates, shortening time horizons and diminution in wealth.

However, by forcing down interest rates, the substitution of savings (real wealth) by cheap credit and by supporting financial markets, they have created an impression that time preference is lower than it really is. This lengthens time horizons, implies that current/rising consumption levels are more easily sustainable and induces incorrect spending decisions. (Basically creating a “new normal” in expectations)