"Inflation Seen As Nation's Salvation" Redux; How Keynes Grew To Hate 'Keynesianism' And Love The Monetary Bomb

Tyler Durden's picture

There are few things as entertaining as watching US propaganda movies from the 1930s. Case in point, this documentary from the depths of the great recession (1933), when America was struggling with a deflationary wave nearly as bad as the one today, and when the only salvation was the spinning of Keynesian politics to the point where even Keynes himself had to send a letter to FDR to warn him that how the US was was interpreting his fledgling economic religion (it hadn't quite made cult status yet), was wrong. Of course, nobody cared then, and nobody will care now: after all there are cans to be kicked, mid-term elections to prepare for, and votes to be bought with ridiculous unemployment benefit extensions upon extensions. And while even back then Keynes disagreed with FDR's wholesale economic approach which compounded failure upon failure, only to be saved by the "fluke" that was WWII, one wonders just how quickly he is spinning in his grave today, when, as Rick Santelli pointed out, we no longer have deflation, but deleveraging to the tunes of tens of trillions of dollars, and no longer a cyclical recession, but a structural shift in the way credit is apportioned, and disappearing, in the economy. We expect to soon see a comparable shift in the Fed's and the ECB's subliminal cartoon messages, which just like the recent 180 from Barton Biggs, will soon begin highlighting all those "previously undiscovered silver linings" in the great satan of inflation.

Hilarious video below:

And as PopModal points out, before America listens to the Krugmanites threaten mass extinction events in case America does not continue to spend, spend, SPEND, read the following observations based on an open letter from Keynes to Roosevelt:

"Now there are indications that two technical fallacies may have
affected the policy of your administration. The first relates to the
part played in recovery by rising prices. Rising prices are to be
welcomed because they are usually a symptom of rising output and
employment. When more purchasing power is spent, one expects rising
output at rising prices. Since there cannot be rising output without
rising prices, it is essential to ensure that the recovery shall not be
held back by the insufficiency of the supply of money to support the
increased monetary turn-over. But there is much less to be said in
favour of rising prices, if they are brought about at the expense of
rising output. Some debtors may be helped, but the national recovery as a
whole will be retarded. Thus rising prices caused by deliberately
increasing prime costs or by restricting output have a vastly inferior
value to rising prices which are the natural result of an increase in
the nation's purchasing power."

"I do not mean to impugn the social justice and social expediency of the
redistribution of incomes aimed at by N.I.R.A. and by the various
schemes for agricultural restriction. The latter, in particular, I
should strongly support in principle. But too much emphasis on the
remedial value of a higher price-level as an object in itself may lead
to serious misapprehension as to the part which prices can play in the
technique of recovery. The stimulation of output by increasing aggregate
purchasing power is the right way to get prices up; and not the other
way round.

Of course, when the nation has no purchasing power, the government steps in to both restrict output and to borrow from future consumption to be the purchasing power of last resort.

As for Bernanke's insane monetary printing experiment, Keynes had a thing or two to say about that as well:

"The other set of fallacies, of which I fear the influence, arises out
of a crude economic doctrine commonly known as the Quantity Theory of
Money. Rising output and rising incomes will suffer a set-back sooner or
later if the quantity of money is rigidly fixed.
Some people seem to
infer from this that output and income can be raised by increasing the
quantity of money. But this is like trying to get fat by buying a larger
belt. In the United States to-day your belt is plenty big enough for
your belly. It is a most misleading thing to stress the quantity of
money, which is only a limiting factor, rather than the volume of
expenditure, which is the operative factor.

So before all those who are dead set on spending America to oblivion and printing trillions and quadrillions more, perhaps they should realize that even Keynes not only did not endorse such irresponsible behaviour, but in fact criticized the US president way back in the day for taking the message of
Keynesianism and turning it over on its head.

Full letter from JM Keynes in the December 31, 1933 NYT issue.

Keynes NYT Dec 31, 1933

h/t Ian

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Mitchman's picture

I think I liked Reefer Madness better...

Kali's picture

Si, mas mota por favor!

buster bucani's picture


I have been reading a lot of (very widely sourced) data detailing massive insider selling and bank selling (including GS) of BP stock in the weeks before the rig explosion on 4/20. Banks had shorted transocean stock in the days before. GS placed a big short on the gulf of Mexico on 4/19 a day before. The fabrice tourre email bragging about this is not a spoof, it transpires.

Just a small selection of posts;




Add to this ownership and speculation of nalco, the company that manufactures the poisonous corexit 9500........

BIIIIG story hoss, and ZH should be on it like white on rice!


Cheeky Bastard's picture

It has been discussed ad nauseam here before; go to the post archives and read post and comments. Its been said before. 

buster bucani's picture

thanks CB, I read ZH several times daily but completely missed those posts! must have a big blindspot I guess. I will check the archives though..........time for an update perhaps?

Cheeky Bastard's picture

I have no idea who brought that fact to the table; but I know it was under one of the later BP related articles. Basically; no one concluded anything that could be classified as "insider trading" [although it most probably was]. Read the posts that were posted somewhere in mid-May to mid-June; its under quite a lot of them. Also; me thinks Tyler wrote a piece on that; not sure. But its always good to be reminded about the shit that went on shortly before and at the start of this BP fiasco.

buster bucani's picture

thanks TD/CB. keep up the good work. hope Matt Taibbi can do a job on this subject.

Matt, are you there? What about it?

robobbob's picture

Between Dec 2009 and March 2010, Soros parted with 20K shares (75% of holdings) of Anadarko (APC), BP's Gulf drilling partner. source Guru Focus

ZackAttack's picture

The only reason they choose inflation is that they think this is a problem they understand and can address.

FrankIvy's picture

IMO they choose inflation because they know this:

During deflation, people  slow spending, worsening the deflation, and the result can be long and painful.

During inflation, people spend more readily.

Now is different only because we've reached the end of the credit road, not because they were wrong about their basic inflation concept.

Dr. Sandi's picture

To me, it's even simpler than that.

People LOVE more money, and they don't think about the consequences.


bull-market_3.0's picture

Honestly, I want the party to continue. I'm way too young to have the party End before I got to enjoy the party. I feel like the guy who gets to the front of the door right as the cops shut down the party...


Common 15 trillion$ stimulus...I need to buy a new house, lease a fast car, and get a "good job" so I can live like the rappers on BET do

Problem Is's picture

Sorry bull... The Party 's Over
And you get the baby boomer's bill...

1. Baby Boomers got all the cheap college education...
...and left scorched earth.
2. Baby Boomers got
all the cheap houses... swapped up and swapped up...
...and left scorched earth.
3. Baby Boomers got
all the home equity and HELCO... 
...and left scorched earth.
4. Baby Boomers got all the easy jobs in government... and all the benefits and public retirements...
...and will leave scorched earth...
5. Baby Boomers got all the jobs on Wall Street... all the easy scams on mutual and pension funds... all the big bonuses....
...and left scorched earth.
6. Baby Boomers will suck down all the Social Security...
...and will leave scorched earth.
7. Baby Boomers will suck down all the Health Care...
...and will leave scorched earth.

Just the Facts, Ma'am: This Will Be the Boomers Epitaph
The most narcissistic, self involved generation of all time. We should have known this since Vietnam was about moral conscious and outrage for the victims (Read: Baby Boomers were getting drafted)... but not a peep of moral outrage or protest over the last decade of civilian slaughter, war crimes and a thousand My Lia's....

Baby Boomers were too worried about their home prices and 401k's to complain... and since it was volunteers in body bags... It was not their kids but some poor kid in it...

From all of us to all of you, Thanks:
Jamie, Lloyd, Clinton, DeLay, Bush, "Dick" Cheney, Dodd, Gore, Milken, Bernanke, "Dick" Fuld, Cox, Summers, Paulson, H., Paulson, J.,... and too many more to mention.

Note: Baby Boomer... Draft age during the Vietnam War to qualify. It defines them...

Dr. Sandi's picture

Thanks for the wild generalization.

But you forgot to mention all the fucking assholes with GREEN EYES. Those are the real bastards who destroyed everything.


Problem Is's picture

It Is Not "Wild"
These are facts backed up by economic statistical analysis and research. Historians will judge whether my conclusions are wild or accurate.

Right now the US political class is dominated by baby boomers.

Care to defend them with some facts?
Of the 70 million... the probability is I am more on target than off...

There are always outliers and rare events. Maybe you are one of them...

Do you want to defend any named on the list?
Are you unhappy to be born between say... 1946 and 1956?

Do you want to guess what a semester at UC cost in 1964 to 1974 as opposed to today?

 What a house cost? What jobs were/are available? What real wages were then are now?

What it's going to cost to keep 70 million baby boomers in Medicare and Depends?

Things that go bump's picture

Come now, you're overwrought.  Nobody actually believes we're going to keep 70 million baby boomers in Medicare, with the possible exception of the baby boomers, of course.   

FrankIvy's picture

Dr. Sandi wrote: Thanks for the wild generalization.

Well, it was a generalization, to be sure, but hardly a wild one.  The Boomers happen to coincide with the heart of the oil-based consumption boom in the U.S..  Many people are angry with them.

If it's any consolation, most Boomers haven't saved enough for retirement and will be working until they're old and gray and frail.  Fuck 'em.  They'll be in the greatest shock of all.  No more yearly trips to the Loser Magnet in Nevada.

But, really, why should we be mad at them?

You want the horribly introspective question?  Ok. 

Would we have behaved, as a group, any differently if we were presented with the reality with which they were presented while having the same antecedent experience?

Of course not.

We're just the last hyenas to the kill, pissed that the Boomers ate most of the ----ing wildebeest.


Problem Is's picture

No More Club Med?

Your response looks logically valid and insightful from both sides.

It is not anger... it is honest assessment and disgust. I am a little younger than they are... and personally... I have behaved quite differently....

Amerikan materialism, celebrity culture and mind numbing teevee drones have annoyed me these many years...

Cathartes Aura's picture

lol, had my "reply" screen open with a conversation on the side Problem Is - missed your latest post:

It is not anger... it is honest assessment and disgust. I am a little younger than they are... and personally... I have behaved quite differently....

Amerikan materialism, celebrity culture and mind numbing teevee drones have annoyed me these many years...

no, it IS anger, there's no "honest assessment" going on - you pick a huge group to stereotype with a media manufactured label, it's not YOURS, you absorbed it - along with all the other nonsense you're typing. . .

so you behave "quite differently" - so did everyone I know, of all ages - I don't know any "boomers" of your description - what to do with THAT information? and the "celebrity culture" and TV drones - that's all and only "boomers"? - no one else is "materialistic"??

seriously, I'd advise you to travel - leave amrka and go to many other non-euro nationstates. . . take a long time, and a long look at the world. . .

your point of view is not unique, nor are you special.

Sancho Ponzi's picture

A couple years back I was cruising down a crowded interstate when I ran up on a couple of boomers driving an RV 20 mph under the speed limit in the fast lane. After a lengthy wait I was able to change lanes and pass the AARP members, then got back in the fast lane, and gestured nicely at the pair, pointing my hand toward the right-hand lane. Ma Boomer promptly proceeded to flip me the bird. I laughed so hard it brought tears to my eyes. 

So they probably spent their working lives contributing little to the SSI and Medicare ponzi schemes, then retire, sell their home and purchase an RV to avoid paying property taxes. It's likely their estate will leave little or nothing to their kids or favorite charities, as everything will go toward RV payments, park fees and crazy gasoline expenses. And if you ask them to be a smidge more considerate, they promptly tell you to f#ck off. 



Nostradumbass's picture

Hey, if we didn't get to the party first someone else would have! Timing is EVERYTHING!

Nostradumbass's picture

I have worked hard, contributed, attempted to not harm Earth, raised children, given to charity, eschewed personal aggrandizement(?) and in general, tried to be a decent hu-man be-ing. I wish us all the best. Tough, TOUGH days ahead mates.

Nostradumbass's picture

Too many margaritas... this by Jim Willie is what I came here to post:



An important initiative is gaining ground slowly and quietly to force 401k and IRA accounts into a USGovt nationalization. In past reports, my sources indicated that bank Certificates of Deposit would be forced into USTreasurys, by means of the FDIC insurance pressure. The precursor might be the retirement accounts. The angle is similar, with favorable tax treatment. The Lew Rockwell Institute is stout and intrepid in their reporting. The USDept Treasury and USDept Labor will request for public comment on ways to promote the conversion of 401k savings and Individual Retirement Accounts into annuities or other steady payment streams. The initiative is spearheaded by Asst Labor Secretary Phyllis Borzi and Deputy Asst Treasury Secretary Mark Iwry. The goal is to induce people to invest their 401k and IRA funds into designed annuities, or else basic USTreasury Bonds. Never lose sight of the fact that USTBonds are the biggest overvalued bubble in world history, after the global housing and mortgage bubble. The USGovt must sell $2 trillion in bonds this year alone, and foreign demand has almost vanished.China does not want them. Pension funds do not either. So the American citizenry will be coerced into investing their pensions in subprime sovereign bonds, the USTreasurys.

The White House and a powerful network of Congressional activists are behind the initiative, which parallels the Japanese Govt requirement to put all their federal and postal worker pension funds into JGBonds. Also, the highly influential Ford and Rockefeller Foundations are pushing the reckless initiative that betrays the working class. They are engineering a new regulatory and tax incentive to pave the way for passage. Their goal and vile purpose is to herd and ultimately force Americans to convert their 40lk's and IRAs into government directed retirement accounts, obviously USTBonds. The de-privatization plan, also called individual retirement fund nationalization, is the brainchild of Teresa Ghilarducci from the Schwartz Center for Economic Policy Analysis (SCEPA), which is funded by the Rockefeller Foundation. Heavy handed tactics are being used that copy those used to ram nationalized health care down the country's throat, despite loud significant public objection. Business Week has noted that new federal regulations designed to promote the conversion of individual pension funds into annuities are essential to direct cash into government controlled entities such as American International Group (AIG), whose cost to date has totaled $182.3 billion. The public could not invest in a worse cause, nor sink money into a more acidic cesspool. Students of history note that such nationalization of the people's savings took place in Argentina two decades ago, once a powerful wealthy nation in the last century.


primefool's picture

I really hope this is rubbish. Because if they touch that IRA - you'll find hospitals with no doctors and no gas at the gas stations. Hope those remaining have a cousin or uncle who had the smarts to go to med school. Good luck.

unununium's picture

Does the Dow sinking below 6700 qualify as "touching IRA's"?

How about the ensuing pillage of money market funds and Treasuries, via inflation?


KevinB's picture

China does not want them. Pension funds do not either.

Oh, really? Is that why we've seen a massive move UP in UST's over the last few weeks? Somebody's buying them.

Dr. Sandi's picture

Let's try this from a different angle.

Defining tens of millions of people by an artificial demographic has minimal validity. It's a convenient way of drawing another stupid "us vs. them" division. However, otherwise it makes more sense to blame the green eyed bastards. And you KNOW who you are.

Just because you didn't get invited to our BB meetings where we divided stuff up and made sure nobody got any other than us, doesn't mean there WERE any meetings.

Sure, Baby Boomers inherited a perfect world, then went on to fuck it up. I only wish we'd had the wisdom to kill our parents and take what was rightfully ours when we were younger and wiser.

The poor, stupid Boomers are easy pickings for the intelligent, well organized youngsters who can see exactly what's wrong and take action to fix it.

Since the enemy has now been defined as Baby Boomers, it should be quite simple to just jump in and repair everything.

So go ahead.

But I've observed one important thing at the BB World Domination Meetings. The people who talk about stuff aren't the ones who get anything done. When the brain is attached to the speech centers, it's too busy to do much else. Much like driving and using the phone at the same time.

So get out there an fix all the crap that we scheming Boomers have created, or whine about it on the Internet.

A lot of Boomers whined about what was wrong and who was doing it. Too many Boomers expected SOMEBODY ELSE to fix all the crap and corruption because it's the right thing to do. Naturally, it wasn't OUR job. But SOMEBODY would fix it because somebody always does.

I don't think it's working, but it looks like the next generations are going to follow the same course.

Good luck with that. Maybe it'll work better this time if your indignation about the "other" is righteous enough.

Or perhaps it's just human nature worldwide and through the ages to blame somebody else for the crap we're too scared, inexperienced or lazy to tackle on our own.

We certainly all need another bogus group to aim our hatred at. If we do things right, we should be able to divide the country up into about 330 million splinter groups that everybody else hates.

And that's a lot better than finding common needs and trying to create something useful in these dire times of imminent collapse.

But hate is always so much more fun than cooperation.



wyosteven's picture

Yeah, boomers are hot s**t, with all the answers.

What I want to know is when is everyone going to stop pointing fingers and start to help dig this bus out of the mud instead of just talk, or speculate about it.

I'm as unhappy as the next that we're stuck, but now is time to push.

jesusonline's picture

"Naturally, it wasn't OUR job. But SOMEBODY would fix it because somebody always does"

That's the problem with you and it's not "a different angle". You've built up your entitlements like US would always be on an indefinite growth path. Amerikan "apres nous le deluge", sort of.

Cathartes Aura's picture

"Boomer" = socially constructed meme to describe someone of a certain age, usually that isn't yours (you have a tag too, trust me).

if you want to make a HUGE ASS generalisation to include everyone of a certain age in a great sweeping "othered" group to hate, be my guest. . . but consider this, it's a form of divide 'n' rule created  just. for. you.

and yes, some "boomers" did make shitloads of monies and bought lots of stuffs with it - but there are quite a few under 40's in the "financial" market, hedge funds, traders for banks, etc. etc. - the list of people to hate is pretty much endless, if you want to go that route. . .


subqtaneous's picture

Normally I wouldn't bother, but just for such concise eloquence, make that one anti-junk.


antidisestablishmentarianismishness's picture

Holy shit, I can see it now.  An army of pitchfork-wielding youths, pants dragging around their ankles, screaming for Boomer blood in the few free moments when they're able to drag themselves away from their pitiful electronic device connection with life.

wyosteven's picture

The joke is on you - boomers would never see it coming, just like they have failed to see anything else.     

Your "vision" might lead one to question whether or not you are on drugs.

ElvisDog's picture

Gotta agree with you. 90% of the under-20 crowd I observe never take their eyes off the tiny screen they're tapping into long enough to know what's going on around them let alone take any positive action.

nmewn's picture

"An army of pitchfork-wielding youths, pants dragging around their ankles, screaming for Boomer blood in the few free moments when they're able to drag themselves away from their pitiful electronic device connection with life."

LOL...+ a billion.

Diogenes's picture

Where's all my stuff? I was born in 1951 and I want my stuff dammit! Where's my free college degree, cheap house, 10 cylinder SUV, beautiful trophy wife, easy job, free and easy credit, king size beach house, skiing weekends, lush pension, and big 401K full of cheap stock! Some dirty bastard got all my stuff!

The Alarmist's picture

The Generals always fight the next war using the strategies and tactics they used to win the last war.  That assumes, of course, that the last war was actually won.  So what happens when the other war was merely sidetracked by a bigger war? The current Depression is being fought by people who think the New Deal ended the Great Depression.  Let's hope they don't now decide, after failing on the monetary side, that the only way out of this one is to start up yet another world war.


three chord sloth's picture

Heh. Keynes reaches out from the grave to bitch-slap Krugman and Bernanke.

CPL's picture

I'm trading everything I have for cows. The presentation was solid.

MayIMommaDogFace2theBananaPatch's picture

Well, you can't eat...Oh, wait, you CAN EAT cows.

dnarby's picture

I'll trade you a pre '64 quarter for a pound of hamburger.

Bam_Man's picture

Agriculture represented a much bigger % of US employment and GDP back in the early 1930's, and the depression-induced collapse in commodity prices was devastating to farmers.

If you were a farmer, or anyone that did business with farmers in the early 1930's, you were literally praying for inflation.

Today it is a very different story with mainly the banksters and their upside down mortgagees doing the praying.

hbjork1's picture

There was also a drought that reduced crop production in the plains states that compounded the problems.  Economical long distance transport was not available so if you didn't grow it your neighborhood, you didn't have it. 


Rusty Shorts's picture

One of the greatest disasters during the depression, was the American Chestnut Tree blight, Chestnuts were used as a sustenance/currency in many areas of the Eastern U.S., not to mention the premium lumber it produced.


Chestnut Trees were called the "Redwoods" of the east, for good reason.






Memories of the Chestnut loom large for many elderly residents of Appalachia; the nuts became a memory recalled with fondness, a memory of extraordinary abundance. The great forest had passed in less than fifty years. For generations the seasonal bounty of Chestnuts provided food for natives and settlers alike...the loss of the Chestnut ended a way of life for many. - Unknown -


"The Chestnut blight has a special place in the history of the American forest. Older folk still recall the period of massive Chestnut kills in the late 1920's. The dead and dying trees would stand gray white in the pale moonlight and result in creating a massive depressive condition...the hills of their youth were dying before their eyes, and much of this occurred during the Great Depression." -Phyllis Windle-


"I passed through a scene impressive in its aspect of desolation. This section must at one time have been a pure Chestnut Grove. Now every tree is dead. All the trees had been uprooted and lay on the ground. The rains and snow had washed away the dead bark and bleached the trunks a grayish white. These Chestnuts were of tremendous size, now a graveyard of giant trees...the area was easily two square miles."
(Fishers Gap, Virginia 1926)


"they also grew behind my house, and one large tree, which almost covered it, was, when in flower, a bouquet which scented the whole neighborhood, but the squirrels and jays got most of it's fruit; the last coming in flocks early in the morning and picking the nuts out of the burs before they fell. I relinquished these trees to them and visited the more distant woods composed wholly of Chestnut" ... Henry David Thoreau, Walden, 1854.


"the mountains looked as if their crest were once more covered with snow, waving with white Chestnut blossoms in the crowns of the ancient trees, great domes of flowers arches above the lane, so as that it looks like a sea" - Unknown -