Comment: That is an interesting thought

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Michael Nystrom's picture

That is an interesting thought

I didn't remember that part about the speech, so I went back to look it up. It is worth the full read again:

Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C., November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here

http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/

This is probably the part you're talking about:

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.

I suppose that could be considered a veiled threat. Hm. I'll have to think about this one. Thanks.

My thought at the time was that maybe the Fed doesn't really want to prevent deflation. I wrote a whole article about it, back when I used to write articles:

http://www.bullnotbull.com/archive/deflation-2.html

The key part to remember is that the Fed is not part of the government. And at this point, their interests may be aligned, but at some point, it might just be in the Bankers interest to run the country into the ground and take everything. Stranger things have happened. And there would be no better way for them to do such a thing than through the tool of deflation.

Here's how the deception works: Ben has "saved the day" by steering us clear of a second great depression. But now he's tired, and wants to go back to the farm. Now a ham-fisted conservative takes over and turns off the spigot, crashing the economy ("It is what the Tea Party wanted!"), and now the Fed, the largest owner of MBS's, own the country.

A fantasy, maybe. But stranger things have happened in history.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.