Friday, March 20, 2009

Well, Sirs, I'm No Bagehot!

Our intrepid research assistants have been very busy. They found the following discarded document in the trash bins outside the Federal Reserve building in Washington DC. Apparently mislaid, it evaded the jaws of the shredder and is presented here for the first (and last) time.

(draft copy)

March 19, 2009

From: Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve

To Whom It May Concern

Dear All,

Let me start by pointing out that my name is Ben, not Bagehot and that this is the 21st century, not the 19th. For those not familiar with said gentleman's monetary policy admonitions, allow me a brief quote offered in his opus "Lombard Street":

"We must keep a great store of ready money always available, and advance out of it very freely in periods of panic, and in times of incipient alarm. Any notion that money is not to be had, or that it may not be had at any price, only raises alarm to panic and enhances panic to madness."

You may be puzzled; after all, the Federal Reserve under my leadership has cut rates to zero and is constantly providing lakefuls of "ready money". So what is the difference between myself and Bagehot, you ask?

Simply this: while Bagehot advised lending freely and copiously during financial crises, he did so with the proviso that money should be directed only to temporarily illiquid institutions and under no circumstances to terminally insolvent ones, which should be allowed to fail, instead.

Well, ladies and gentlemen, let me assure you: I'm no Bagehot!

Thus, though I do rule money by near-absolute monarch fiat, I am not beholden to any notion of bygone Victorian monetary rectitude, such as the gold standard. My motto is Let No One Fail For Want of Bail. It is really a shame the government won't allow me to inscribe this above the entrance of the Federal Reserve Building in D.C., so I guess The Bernanke Exit must suffice - for now.

The Federal Reserve Building, Washington D.C.

In case you have not noticed (read my official biography), I grew up during the 1970's, a period of Keynesian economic theory apotheosis around the world. Even if a halo of Austrian neo-classicism may be discerned around me, what really matters right now is that I am a fully certified pilot of moneycopters (instrument rating). Such a development not even a genius of Bagehot's calibre could have predicted two centuries ago, let alone lesser lights today (I shan't mention names but you know who you are).

Therefore, let this missive act as a warning to all shorts, plungers, goldbubs, deflationists, doomers and acolytes of Wall Street declasse riffraf: I shall use all powers vested in me to smite you down. As for my erstwhile collegiate colleague from NYU, him of newfound fame and acclaim, I reserve a special bon mot from the 1975 rejoinder of President Ford to Mayor Beame of New York City: drop dead.

Sincerely Yours,

Ben (not Bagehot) Bernanke


And perhaps not unrelated to the above discarded memo (Taylor rule and all that), yesterday came news that continued claims for unemployment insurance reached a record 5.47 million, though not nearly as high as levels reached in the '70s and '80s when measured as a percentage of the labor force.


  1. Not to worry about unemployment, the riff-raff will soon be getting a new shower of "trickle-down" monies from the duly awarded "best and brightest" of Wall Street (well OK maybe a bigger food stamp budget?).

    And you thought we got rid of all the extremist ideologues from the toxic administration? Balance? Triage based on critical analysis? Reward and punishment? No, only destruction and birth of money in Ben's Fundamentalist world. But be assured he's shocked! shocked! to find out there's whoring and pimping going on in this holy brothel (Well at least he doesn't blame "welfare queens" for the federal budget woes).

    Ben to the world "Dollar savers are suckas".

    The only question remains is "how do I get me some a dis gobment money" Ya gotta buy into the Seminar:

    What have we learned from this bailout class? "When the barn door closes there probably be a pigpen gate openen'."

  2. Thank you, Hell, for this lovely piece.
    I ESPECIALLY enjoy the reference to Bagehot, which I followed, and AM VERY PLEASED that this man wrote not only on economics, but on constitutional history, and YES, EVEN SHAKESPEARE, MY IDOL.
    A well rounded man. At a time when "philosophy" was not a dirty word...

    I have been thinking about your green energy ideas. (Even if I do not understand a lot about what you advance...)

    Yesterday I thumbed through Dune again, after a long absence. I was/am stunned still by Herbert's genius. And what intrigues me is the way that Herbert opposes the initial localized Fremen ideal of making a garden of Dune, and the empire power politics of controlling spice (politics which eventually exhaust themselves ).

    And it also came to me that I think that ANY emphasis on ENERGY will only exacerbate a permagrowth model, because energy and production are the bases for permagrowth. Homo FABER, if you like. And BOTH go together, and are important : HOMO for MAN (not feminine) and FABER for... WORK ? Doing ? You pick. This model is TOTALLY OUT OF CONTROL in my book. (Careful, I'm not knocking on MAN, nor am I knocking on FABER... I'm saying that the combination is out of control in our civilization at this time.)

    But... WATER as a basis for value, that seems different to me.
    I say this because the Meditteranean culture that we came from attached EXTREME value to water. In the Bible, many many of the most spiritually significant incidents take place at a well, and if you remember, Jesus says, "I am the Water of Life".
    Water is a metaphor which is particularly rich for imparting value, and here is why :

    It is associated with imparting life. And it is perceived as a source, a fountain, RENEWABLE forces. And we are desperately in need of metaphors capable of attaching this idea of renewable to them, because the loss of the idea of renewable (but this word is insufficient, what I mean is the fact that giving generates more wealth, in an exponential way, like a small spring will well into a river ) is what is collectively depressing us so much. (I mean, HOW do you get up every morning day after day if you are referring yourself to metaphors of the human body as a machine which has to be "wound up", for example ?)

    We need to discard our current mecanistic metaphors. Along with the idea that energy must be PRODUCED intentionally by US.

    I repeat, however, that I was seriously shocked in the U.S. this summer at the ASTRONOMIC WASTE of water everywhere. This is like shitting in your drinking water (which we do, incidentally...)

    Food for thought...

  3. Bagehot?

    We don't need no stinkin' Bagehots!


  4. "...though I do rule money by near-absolute monarch fiat..."

    Though I wasn't an English major, shouldn't that be "...monarchi(c)al fiat..."?

    On a more serious note, the unemployment rate in 82 was higher than in 74; do you understand how continuing claims rate could have been so much higher in 74?

  5. The collapse of Rome - real time!

  6. "only 12% of Goldman Sachs is owned by public stockholders."

    Does anyone have any info on the other 88%? They're such a curious company....

    Is the correct interpretation of the Fed's announcements last week of $1T new USD essentially "we're going to inflate regardless of whether it pisses China off or not".

    And is the correct philosophy "deflation= hold cash, inflation=hold anything but cash"?

    Gotta find that old tinfoil hat I had...

  7. ref.: Debra


    Could you get Debra to contribute as a guest blogger? Her stuff is really interesting and would get a lot more focus as a post than buried in the comments. i am stunned on occasion by the perspicacity of the insights. I did graduate school in french speaking Belgium and can see some of her influences in the French intellectual tradition but frankly she has so much uniquely her own to offer.

    I commented at length on her contest comment on the role of God and trust. If she sees this I'd appreciate further insights on my rejoinder there.


  8. Dear SS Anonymous,
    Thank you for your praise.
    It gives me a warm feeling inside...

    I am aware that I have been squatting Hell's blog for a while, creating perhaps a somewhat "schizophrenic" atmophere.

    I like this blog.
    I have made friends here (I think...) and it feels a little like home.
    I tried posting on Open Salon a little bit, but it is like Wall-Mart, and most of you here can guess my sentiments toward Wall-Mart...

    IF there are others who share your opinion, SS, and IF Hell himself shares your opinion, I would be happy to contribute my two cents worth to what I think are the metaphysical issues involved in all this money-grubbing, money-grabbing civilization.

    And SS, return to your comment to see my response.
    And please choose a name, if you don't mind, as it is hard to receive individual responses under an anonymous, (even if you mark SS...)
    Thank you. : )

  9. @ Debra,

    Thanks so very much! I've posted some additional thoughts in the same thread. Hope Hell takes us up and has you do an occasional guest post. All the best.


  10. Monetae cudendae ratio

    Leverage levels are very hard for policy to affect directly, as they result from millions of decentralized decisions about how much people borrow. Anyone with high levels of debt in any market economy is now reevaluating how much debt is reasonable for the medium term. As a result, while attempts to clean up and recapitalize the US and European financial systems make sense, and are needed to support any eventual recovery, this will not immediately stop the process of financial contraction and economic decline.

  11. Thanks, Ben. Lucifer here:

    Thought you'd want to know that there's a special place in Hell reserved just for you. Good intentions, don't you know. In the meantime, I have it on good authority that there are many hoping you suffer some rough justice before your final exit to the fiery pit.

    Money Center Banks
    Awash in FRNs
    Write no thank you notes

  12. Debra, I am a big fan of the 1st Dune as well as Frank’s series (not so with the triple trilogies co-penned by his son).
    Curious that Frank's series rapidly departed from nature/environmental issues once GodEmperor appeared...though it can be debated Frank returned to it with a vengeance by ChapterHouse as the BeneGesserit fought , many eons beyond Dune,for survival while being reclusive.
    Reflecting on the extreme passage of time captured in Frank’s series, brings to mind cosmological timelines.
    Protecting any particular planet's environment (habitable by mammals or not) does not seem to be an agenda item for cosmological forces...all habitable planets and moons are expendable in the life-cycle of stars and solar systems. And nature seems awfully indifferent to even what was living on earth as assorted planet-extinction-level events unfolded in-between super-continent and super-ocean formations and other semi-hemispheric-extinction events,including polar glaciation and caldera-super volcano events.
    It seems 'In-Difference' rules.

  13. Hideous

    Odd how the use of expletives makes the situation clearer....

  14. What's with the new nome de plume, is it your character's full name from the novel?

    Anyone figure out how continuing claims rate was so much higher in 74 when the unemployment rate was higher and the recession lasted longer in 82?

  15. @ Avi Guy

    My reason for suggesting Debra as a guest blogger is that though an economist, having practiced successfully for 28 years and like you and few of my confreres having predicted the current debacle, I truly believe that the crisis is much deeper than technical economic errors. We have a crisis of education, a crisis of morality and a crisis in social understanding fostered by years of perverted ideology by the dominant class. The sad post above is an unfortunate example of how much ground we have to make up and a weekly or monthly vetting of Debra's ideas would certainly help in this regard. Best.


  16. Avi Guy, I am thumbing through Dune again, ALL books, somewhat capriciously and erratically, and saying to myself that I need to sit down and STUDY the books in detail.
    As it turns out, I realized a while ago that Sci-Fi was a haven for philosophical reflection, in perhaps the same way as the issues that Greek theater put on the table are now being treated, in a dumbed down way, generally, by the modern "detective" novel...
    The ecological issues are constantly present in Dune. Remember the last scene is set "in the garden"...
    Herbert was a genius...

  17. SS Said...

    "We have a crisis of education, a crisis of morality and a crisis in social understanding fostered by years of perverted ideology by the dominant class."

    Can you share what you mean a little more?

  18. This can't be good. Any thoughts Hell?

    Doesn't it seem a little to you like the US is risking it's reserve status. I sense most politicians (and journalists) don't even understand what this means.

  19. @Thai

    "years of perverted ideology by the dominant class."
    Can you share what you mean a little more?"

    Sure - We live in a very complex modern society where we are entirely dependent on others for our food, defense, monetary system, transport, policing, interactions of producers with suppliers and retailers - in short all of the viital aspects of life. Failure in one part of the system leads to waves of repercussion throughout, leading to numerous secondary failures and the risk of social breakdown.

    A philosophy of social interaction or ideology, if you like, based on reality would certainly take this into account advocating the common welfare before most else, concern for ones neighbor and prudent regulation of actions which promise to be harmful to the whole. But no, instead our ruling class gives us through our educational system, the media, literature and numerous cultural outlets which they dominate a philosophy of individual freedom, competition and disregard for the collectivity, as if failure was based uniquely on personal weakness or lack of effort and not on ones place in the system which rewards and punishes based on many dubious criteria. The Church's fight against this individualism and materialism but the forces of cultural domination were too strong for too long.

    This is somewhat hard to see in ordinary times but when the lack of regulation, disdain for others, the environment and anything not in one's immediate self-interest, leads to today's near social breakdown than I think it is pretty clear for all to see. This is what I mean by perverted. Without being religious it is one of many natural emotions of man to seek to help his neighbor and it needs to be suppressed if society wishes to bring out humanity's more agressive tendancies. In our state of advanced social interdependence such aggressiveness, is against our interests as a society and consequently perverse. i might add that it is immoral by any religious teaching but I am an economist not a religious person or teacher so I'll leave it at perverse.


  20. @Yoyomo
    "What's with the new nome de plume, is it your character's full name from the novel?"

    In Dune the main character changes his name to "Muad'Dib". Muad'dink was a geek joke. Dink Meeker from Ender's Game is the source of the name. When deciding on a name I googled "dink" to make sure it wasn't a slur; when Google reported that Dink in the military means "Desperately in Need of Knowledge" I knew it had to be mine;)

    I view belief in the supernatural as a cause of suffering, not a cure for it. I like Sudden Debt as is.

  21. It really is a great book Yo if you haven't read it.

    SS- I do love the internet.

    Where else can you meet such obviously intelligent/thoughtful people as yourself and share these types of conversations?

    I absolutely agree with much of what you say.

    If I understand you correctly, are you framing that old problem we keep returning to on this blog: The Tragedy of The Commons?

    And if so, how do you personally choose to balance personal interest vs. collective interest (much less define either)?

    For if you are discussing the tragedy of the commons (as this topic has come up on the blog many times before), I do have a problem with a kind of cognitive dissonance that many people seem to bring to discussions on the tragedy of the commons.

    For while I often see a certain tendency to blame the guy with the biggest house in the neighborhood (usually making the greatest individual transgression on our commons), yet I also see a similar disregard for people's own personal transgression on our same commons.

    I have often seen personal transgressions justified as "OK" simply because they are so much smaller in magnitude than the transgressions by our "elites".

    This view often (though perhaps incorrectly) leads me to see many people as somehow justifying death by a thousand cuts as "more OK" than death by a single slice.

    And if it helps to explain my own views on around dilemma, I reject either.

  22. @Thai

    I am truly enjoying the internet and very pleased to meet, at the very least the ideas of you, Debra, Hell, Avi and others.

    My political philosophy is that of democratic socialism.

    No it won't work either but I like the premise it starts from much better and will facilitate the continuing struggle. I never posed the dilemma that you do but see it as an order of magnitude. I would start by correcting the big problems and move to the smaller ones. I am not kidding myself though, it won't be that easy.

    All the best, by the way like it or not I believe we are inexorably moving toward a more socialist society, though it will be in fits and starts if not with some upheaval.


  23. Debra,

    Oh ye strikes so foul as to bring up that glorious final scene set ‘In The Garden’ in ChapterHouse. Twas the cliffhangers of all cliffhangers...for Frank died on us soon afterwards. Only to have his well-meaning son stir our hopes 20-odd years hence with promises of a final book 'based on Frank's hidden cache of notes'. And to have hopes made brittled from the ages soon dashed asunder by the son's wretched lack of imagination and formulaic hollywoodish writing.

    Me rather talk of things ecological.

  24. "by the way like it or not I believe we are inexorably moving toward a more socialist society"...

    I believe your socialism = what I tend to see as "the super organism" (you and I are simply one cell of its entirety). link, link.

    But as Yogi Berra once said...

    -"It's tough to make predictions, especially about the future".

    I might remind you that in this world of near infinite complexity, individuals like you and I represent structures of tremendous complexity - well maybe I should say that you represent tremendous, my wife always tells me I are rather quite simple ;-)

    Yet when bubbles "pop", it is those structures of the greatest complexity that tend to suffer the greatest fall (My grandfather's '36 Naval Academy class suffered over 60% casualty rates in WWII).

    We tend to not see ourselves as "average", this is often are significant oversight.

    And imo, any attempt to go after what you see as "the biggest transgressions" (i.e preventing the single slice) will fail if the smaller "thousand cuts" are never the less much larger in aggregate than that that single slice ever was (I think I have made it clear from other comments I have made that I believe the thousand slices are much larger than the one).

    But one never knows...

  25. One of the reasons that I like Dune is that Herbert (like Shakespeare) was entirely capable of seeing paradoxes, and practiced oxymoron (like the wonderful Elizabethan metaphysical poets).
    I am going to point out some of the paradoxes of this civilization :
    1) While mass murder on a larger scale than our ancestors were capable of practicing it is now possible, and in a blink of an eye, (and we have been ACTIVELY cultivating this capacity), we are capable of collectively mourning for an individual, and the very IDEA of war has become anathema to us. (cf. the reaction of the American citizenry in the face of any and all casualties).
    2) While we seemingly cultivate a form of crass, superficial "individualism" that seeks a certain justification in Adam Smith, Charles Darwin, to name just two, we have never at any point in time been under as much pressure collectively to "conform" to what is currently trumpeted as being "facts", but whose ideological aspects we remain stubbornly blind to.

    I am perplexed about our collective equilibrium in terms of aggression. Aggression is part of us, part of our identity. It gives us energy to live. And we need to find ways to canalize it, for it to be acceptable. (Our societies have NEVER had so little violent crime before, my friends...) But since we are structured on the lines of hostility towards what is perceived as being foreign, for our own identity and protection, globalization has radically altered our individual and collective means of affirming identity this way. It is not comfortable for us. What is the future for our aggression now that wars (a way of channeling aggression OUTSIDE society) are becoming more and more taboo ?

    I woke up two years ago to realize in a big way that "every advantage has its disadvantage, and every disadvantage has its advantage".
    As such, I believe that perversion of ANY and ALL ideals is inevitable. Even the ones that we love the best, and would like to cherish indefinitely in the face of a constantly changing universe that will not allow for it.
    I believe in NO IDEOLOGY. Religious or other.
    And I am resolutely camped IN BETWEEN, in my thoughts, and in my actions.

  26. Hell, you obliterated my comment AFTER the DEALER (or whatever he is, because just think of it, your American keyboards CAN'T translate my French language any more than OUR European/American keyboards can translate the Chinese/Japanese characters. Maybe he WASN'T a dealer, maybe he was trying to participate in our discussion, who knows ?)

    Could you ressuscite my comment, or not ?
    I would appreciate NOT having to call it up from memory again.