Ben's Odyssey -- Chapter III

Ben has defined deflation and has outlined his program to fight deflation.  Ten years ago when no one was thinking deflation.  Today we track just how far Ben has traveled in this odyssey of his to fight deflation or whatever it is that he calls deflation fighting.  First, we would like to bring back a chart we showed you several weeks ago.  Remember, as you view this chart, the definition of deflation that Ben gave us in 2002 when he was thinking about deflation – or at least trying to get others to think about it.  Here are his words – ““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.”

On our government chart above, the blue line, described as “all consumer items” would reflect an overall assessment of consumer prices.  We, at TheFundamentals, cannot find any evidence or even a smidgen of factual data to support a conclusion that price declines are widespread.  Some prices, as a matter of fact, are not only NOT DECLINING, they are escalating through the roof.  College tuition and fees and medical care prices are jumping off the chart.  And even though we don’t show it here, we all know that the price for anything “government” related just keeps rising and rising.   We can use these facts to support a conclusion that price increases are widespread; not the other way around.  So we ask Ben, “Prices are not declining.  And yet, you are well along this odyssey of yours.  Why?”  Here are some of the deflation fighting actions you described ten years ago (we took the words directly from your speech) along with a current status report --

• Nominal interest rate declining to zero or almost zero (done – Mission accomplished - you did it Ben; over two years ago and you have said that you will keep them low into 2014.)
• Lowering rates on longer maturity treasuries (done – Mission accomplished - you’ve done it – ten year treasury bonds are now at record low yields; below 1.5%.)
• Operate in the market for agency debt such as GNMA (done – you did it; as a matter of fact you own a big chunk of the debt they and the other government mortgage agencies issue)
• Buy foreign debt (done – you’ve been out there buying foreign debt)
• Purchasing private assets (done – just the way you described – treasury issues the debt to do the politicians bidding and you buy up the debt)
• Running that thing you called a technology of the government – a printing press or its electronic version (done – you have been running the printing press 24/7.  When do you plan to stop running the presses Ben?)

And yet, Ben, when we look at the chart above we are still struggling to see that triggering event you mentioned.  Remember Ben, that causal factor about widespread price declines – not specific or focused situations, but overall big time price declines.  Where are they Ben?  Why has this deflation fighting odyssey of yours advanced so far into the steps you outlined without any triggering connection? And why is it not accomplishing the objectives you so arrogantly outlined ten years ago?  Could it be that there is no deflation but something else?  Something very different than deflation that is underway?

Before we close this chapter on Ben's odyssey, we would like to pose this question, "Ben, do you know the difference between supporting unsustainable government sponsored bubble(s)  and fighting deflation?"  What is Ben up to?  More to come...