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FreeMarkets (92.43)

The Ultimate Goal of Monetary Policy

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April 07, 2011 – Comments (9)

Once in a great while people slip up and tell you EXACTLY what they really think.  This happened when Christina Romer, speaking on the "Daily Ticker" said the following at 1min 28 sec into the video: "If you in fact look at what QE does, it tends to lower long term interest rates, it tends to lower the price of the dollar, both of those things are good for ordinary families."

This is absolutely fascinating (at least to me). In the world of Christina Romer, the average family is in enormous debt (which is true), but more importantly her FIX is to put them in deeper debt.  Debters do well in an inflationary cycle, as they pay back debt with dollars that are worth less and less.  So getting the American people out of debt and in control of their finances is NOT something leading economists are advocating.  Of course the fact that gas is $4/gal now must be friggin' AWESOME for the average American family.

But wait (as the Ginsu knife commerical would say), there's MORE.  She continues to say "The lower long term interest rates means its easier for firms to do investments, it's easier for consumer to afford borrowing, so that tends to encourage spending, and when people spend that puts people back to work."

I think what bugs me the most is that Christina Romer is not a musician.  Musicians often speak about things they don't understand, but Romer is a Professor of Economics at Berkeley.  It is true I've often knocked on Keynesian economists, but I didn't think they went so far to believe SPENDING = EMPLOYMENT.  If this is the mind of the average economist then we are seriously screwed.  In fact, she goes one more step and says "A lower price of the dollar tends to make our goods more competitive in foreign markets so we export more, if we export more we need more workers to produce."

This is STUNNING!  And I hope not just to me.  A lower dollar is now seen as beneficial, even though NO NATION in history has ever printed its way to prosperity.  Later on she says that these policies are: "The ultimate goal for monetary policy." 

The interviewer asked about inflation after this initial exchange, here is her response: "What I can tell you is the academic studies that have looked into this absolutely say that QE does what we thought it would going to do. And on the price of the dollar, we're not talking about what is happening to your purchasing power here, we're talking about the price of the dollar in the foriegn exchange market.  And I think everyone tends to agree that a lower price of the dollar tends to make us export more and certainly tends to raise GDP, which ultimately is what causes employment."

Holy f'n WOW!  Not only does she skirt the issue, but she clearly states that a weak dollar BOOSTS employment.  In fact, if we weaken the dollar enough, we can basically work as slave labor to the rest of the world.  We'll all be fully employed as our 80 hour weeks of work will get us a place to sleep and enough to eat.  Our dollar, worth 1/10,000 of what it is today, will be so export friendly PLUS GDP measured in dollars will grow exponentially.  It's a friggin' WIN WIN WIN!

My head hurts too much to write any more, except to say "We're all screwed!"

9 Comments – Post Your Own

#1) On April 07, 2011 at 10:41 AM, mtf00l (49.87) wrote:

I think it's funny you just figured that out... =D

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#2) On April 07, 2011 at 11:13 AM, afewgoodstocks11 (25.35) wrote:

Ya' know, alstry is probably right. I'm not an economist, but i am an historian, and the only historical examples of this type of economic policy i can remember in history ended in one/both of two ways.

If it's a small country a few folks end up owning everybody else and then they write off the national debt.

If it's a large country they try to do that,  but it gets out of hand and they go to war.

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Most americans i know can't think straight about money.  I was at a parent education co-op last week. AT THE VERY FIRST meeting they decided to pay part time educators $15/hr. When i pointed out we could only afford to pay them 13.5, and asked if we had offered that, i was told "we don't want to pay less". 

Then they decided to have a fundraiser to make the difference. Ironically, i had been calling for fundraising for months and nobody cared till i pointed out we were in debt. HERE'S THE FUNNY; they then closed the meeting, having spent ALL the money and more, AND DIDN'T DISCUSS FUNDRAISING. 

Three weeks later, and only a month till school is out, and still not a dollar raised or discussed, but there is a meeting next week about spending more.

 

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#3) On April 07, 2011 at 5:52 PM, Betapeg (< 20) wrote:

A lower dollar is now seen as beneficial, even though NO NATION in history has ever printed its way to prosperity. 

China is doing it right now. Why do you think their exports are so cheap? They purposefully devalued the Chinese currency relative to the dollar specifically, just to keep their export economy grinding on. Meanwhile, look at the decline in exports we've suffered during the last 30 years.

Clearly, the belief in a persistantly strong dollar, is a misconception. The G-7 helped Japan intervene to devalue the Yen after it skyrocketed. America needs a weaker dollar right now, not a stronger one.  

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#4) On April 08, 2011 at 6:12 AM, dbjella (< 20) wrote:

Betapeg  So is there a worldwide race to devalue everyone's currency?  This seems like it can't end well.  Just my two cents, but I would rather have a dollar I can believe in. 

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#5) On April 08, 2011 at 6:57 AM, FreeMarkets (92.43) wrote:

#3 - it's a myth that China is devaluing its currency.  They've pegged it for the last 30 years, and have only let it appreciate in value during that time, NEVER have they depreciated their currency in the last 30 years.  The only people devaluing their currency is us.  Now, the politicians tell you that the Chinese are keeping their currency artifically low and you think they're devaluing it, but they are only NOT allowing it to appreciate.  That's not the same thing as DEPRECIATING a currency.  Again, over the last 30 years the value of the yuan vs dollar has appreciated.

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#6) On April 08, 2011 at 7:01 AM, FreeMarkets (92.43) wrote:

Now, one could argue that pegging it to a crappy dollar that continues to DEPRECIATE is similar to allowing your currency to depreciate, and I wouldn't disagree.  However, it is NOT China's policy to depreciate their currency, it is to PEG it to the dollar.  Over the last two years, China has tightened lending standards to keep inflation at bay - a problem with their PEG.  However, even during these last two years, the Chinese are working at limiting growth without eliminating the PEG.  We'll see if they can keep it up.  Another argument is that they figured out how the U.S. screws the world through monetary policy and the student has become the master.

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#7) On April 08, 2011 at 12:40 PM, Betapeg (< 20) wrote:

dbjella

So is there a worldwide race to devalue everyone's currency?  This seems like it can't end well.  Just my two cents, but I would rather have a dollar I can believe in. 

Something like that is possible but it's not happening. I'm just showing that a perpetually strong currency is actually bad for an economy. The intervention in the record strong Japanese Yen demonstrates this fact.  

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#8) On April 08, 2011 at 12:43 PM, Betapeg (< 20) wrote:

FreeMarkets

How China devalues their currency is irrelevant to the fact that their currency has been artificially devalued relative to the dollar and have benefited they immensely from this. It shatters the notion that a strong dollar is always best. If that were the case, the Japanese should be jumping for joy because the Yen is at record multi-decade highs. 

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#9) On April 20, 2011 at 2:06 AM, Eudemonic (61.69) wrote:

What's the difference in net effect between inflation and currency devaluation?

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