Catching Up

Some links worth reading. Doug Noland says “Things Have Gone Too Far.

As difficult as it may be for most to believe, the world’s preeminent central bankers are a select group of highly intelligent public servants that suffer from a huge void in their understanding of contemporary finance. And the issue goes much beyond the lack of “great models of financial instability.” They subscribe to an erroneous and outdated doctrine of how finance operates and seem to share a flawed perspective with respect to the interplay of contemporary finance, financial markets and economies. Worse yet, Dr. Bernanke is wedded to a (Milton) “Friedmanite” revisionists view that the “Roaring Twenties” was the “Golden Age of Capitalism” brought needlessly to an end by negligent central bankers unwilling to print and inflate. His fixation has been with policy mistakes in the 1930s – with little apparent interest in those from the 20s, 70s, 80s, 90s or 2000s…..

…. The Bernanke Federal Reserve became a laboratory for testing radical academic theories. Rather than recognize the clear risks of aggressive central bank financial system and market interventions, the Fed became the biggest inflator of asset Bubbles the world has ever known. They remain hard at work, steadfast and uncompromising in the face of conspicuous shortcomings and potential catastrophic failure. And, ironically, the greater the global dominance of inflated securities markets, the further the shift of central banking governance to academics with little experience or practical understanding of the functioning of contemporary market-based finance.

It is astonishing and continues to amaze me that Bernanke and his peers do not understand how banking works. And now the California train wreck continues to trundle down the track – “California Pension May Ask for 50% Boost to Close Gap.

California taxpayers may see the municipal pension contributions they fund for the California Public Employees’ Retirement System rise as much as 50 percent under a plan to fill $87 billion in unfunded obligations.

Alan Milligan, the fund’s chief actuary, recommends that the biggest U.S. pension stop spreading out losses and gains over 15 years and instead set rates based on how much is needed to reach 100 percent funding within 30 years.

As I’ve mentioned before, even this level of funding is based on fantasy levels of return – the true level of funding is much, much lower than the 70-odd percent claimed by the fund. In closing, an excellent comment on the Consumer Price Index recently released.

What you will find fascinating about this report if you look at the detail level is what it tells you about innovation and what that should mean for consumer prices. That is, the natural deflationary tendencies in the economy as a consequence of technology. Televisions, for example, were down almost 17% in price over one year’s time. Other video equipment, down 8.5%. Audio equipment (Stereos, etc) down 6.5%. Computers, down 8.5%. Other consumer information items (such as telephone hardware, calculators, etc), down 5%.

The premise of “2%” price inflation as a “target” is raw theft as it denies you the benefit of what you should receive from the fruits of your labor in the form of improvements in your standard of living!

At the same time monopolies and other “price protected” schemes where government is involved in forcibly extracting money from you, such as water and sewer service, trash collection and health insurance are all up around 5, 6, 7%.

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