Brookfield Basics

A column about history, culture, policy, and things in between.

Bernanke's Subtler Way

"There is no subtler, no surer means of overturning the existing basis of society, than to debauch the currency".

Friedrich von Hayek? Ronald Reagan?  Paul Ryan?

While I suspect those three would have or do agree with this statement, they did not utter it.  This quote belongs to famous economist John Maynard Keynes.

I have opined that the laws of economics are inexorable.  Most of our national leaders of the last fifty years have been ignorant of them, and almost all have ignored them.  But inexorable laws operate with or without our collective understanding, obedience, or desires.    

Of those laws, perhaps the most fundamental is the one which dictates, with the simplistic clarity of artesian well water, that anything which exists in great abundance is worth little.  This is true of any resource from natural gas to soybeans to currency.  And it is equally true that the economies of the world, once they loose faith in any one particular currency, will seek a more stable standard.  As the dollar becomes ever less stable and ever more worth-less; human beings, financial institutions, and governments will make decisions in accordance with that reality.  I believe this bodes very poorly for the American dollar, and all who use it.

For me, Ludwig von Mises is the greatest economist.  One of the intellectual giants of the Twentieth Century, he founded what is known as the Austrian School of Economics, and wrote the most comprehensively irrefutable treatise on economics that I have seen - Human Action.  The great man understood that, once all the claptrap and metrics are stripped away, economics is at its essence, the quantifiable expression of how human beings make decisions, and what criteria impacts those decisions.




I believe that in five years time, Federal Reserve Chairman Ben Bernanke's name will be reviled, and that he will be Persona Non Grata in the world of political econometrics.  Inflation is now inescapable, regardless of who is elected in November.  The first consequence of inflation is that more dollars will be required to buy the same amount of goods or service.  This in turn will cause an immediate reduction to everyone's standard of living.  The next consequence occurs on a far broader and aggregrate scale, and like an anaconda, wraps itself around our economy. 

Lending institutions are holders of debt, much of which is at fixed levels of interest over long term periods.  As those lenders find themselves being paid back with dollars that are worth less than those which they originally lent, they will seek to regain their losses by charging more for their newly issued credit, or being less willing to issue it at all.  This dynamic is the building block of what is known as stagflation.  

Opponents of the current President will point to Bernanke's policies and blame Obama, who re-upped Bernanke as Fed Chairman in 2010.  Supporters of President Obama will correctly point out that Bernanke was originally appointed by Bush 43.  Such diversions are at present, unimportant.  What is important are the policies and paths being charted by the Fed.  I believe inflation in the near term is inevitable.  The question that remains is what policies will best combat and turn back that inflation over the course of time.  While the Fed acts as an independent entity, its decisions are influenced by Washington, and can certainly be combatted with fiscal, if not monetary policy.   

Amongst many, there are two primary questions that I believe should be posed by American voters as they consider the November ballots. 

Question One - Do I agree with Keynes' statement about the impact of currency devalution upon the orderly operation of our society?

Question Two - What policies best address concerns presented by your answer to Question One?

Food for thought - happy electioneering.

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