Od-ys-sey (noun): a
long wandering or voyage usually marked by many changes of fortune; an
intellectual or spiritual wandering or quest.
Ten years ago, a man unknown to most, set out on a
journey. This journey of his began many
years earlier as the child of a drug store owner in Dillon, South Carolina. He did well in school – well enough to gain
admission to Harvard University and thereafter to Massachusetts Institute of
Technology. This young man had the
smarts to do almost anything – he chose to do ECONOMICS. And he stayed in academia and prospered and
then something remarkable happened. He became
a member of the board of directors of the Federal Reserve System – the central
bank of the United States of America. The guys who control the money supply;
the printing presses; the interest rates and darn near anything that has the
following symbol connected with it:
$
Ben’s odyssey was about to start. Coincident with this new job of Ben’s in 2002
– fed board member, Ben was invited to give a speech to a group of economists. Ben seized the moment; carpe diem, and gave
them the speech of his life. He chose to
show the economists that when the moment was right; when the planets aligned; when the
fear receptivity was greatest; when those who depended on rising prices and
rising economic numbers to keep their paychecks and benefits and pensions
rising; when they could be convinced that prices were not only going to stop rising but would actually decline; when they could be spooked to their core that something big had to be
done – he, Ben, would be ready and able to deliver the goods; the monetary and
fiscal stimulus to make everything all right again. Just give Ben the reins and the odyssey can
begin. You see, Ben knew all about
deflation. Ben studied deflation. But Ben needed the fear of deflation to arrive
on the scene to get his voyage underway.
Ben was planning this voyage long before that propitious piece of the
puzzle came into the picture.
This is the story of Ben’s voyage – his odyssey – told in
his own words. The quotes are Ben’s
words:
“Deflation is defined as a general decline in prices…”
“Deflation per se occurs only when
price declines are so widespread that broad-based indexes of prices, such as
the consumer price index, register ongoing declines.”
“Deflation is in almost all cases a side effect of a
collapse of aggregate demand--a drop in spending so severe that producers must
cut prices on an ongoing basis in order to find buyers. Likewise, the economic effects of a
deflationary episode, for the most part, are similar to those of any other
sharp decline in aggregate spending--namely, recession, rising unemployment,
and financial stress.”
So, you can see how he sets up his opportunity to take on
deflation – overall price decline (decline in consumer price index); not
specific to one sector of the economy or one product or service and then a
rather casual suggestion that it is derived from a “collapse of aggregate
demand.” We will examine this cause and
effect later. And then Ben concludes why
we must fear this situation because a collapse of demand brings about “recession,
rising unemployment and financial stress.”
That’s enough to scare most politicians and bureaucrats wouldn’t you
agree? Most of us too. Remember Ben knew all this in 2002; ten years ago. Ben knows deflation; Ben know depression; Ben knows that all he needs is a crisis to begin his odyssey.
Next Ben lays out his plan to keep deflation away from the
great economy of the United States but, if it cannot be avoided, Ben also lays
out his plan to show how he and he alone can deal with deflation; slay it in
its tracks and save the economy.
Next, we will use Ben’s own words and follow Ben as he
begins his odyssey.
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