Guest Post: More Monetary Quackery

Tyler Durden's picture

Submitted by Pater Tenebrarum of Acting Man blog,

Central Banks Urged to Drop their 'Fear of Inflation'

An example for the relentless pro central planning and pro inflation propaganda we are regularly confronted with nowadays is a recent editorial at Bloomberg, entitled “Central Banks Must Master Their Fear of Inflation”.  Here is an excerpt from this pro-inflation screed:

“The details get complicated, but the basic reasoning is straightforward. Although nominal interest rates can’t fall to less than nothing, real (inflation-adjusted) interest rates can. To push real short-term interest rates as low as it deems necessary, a central bank merely has to achieve a sufficiently high rate of inflation. (A nominal interest rate of 3 percent is a real rate of 3 percent if prices are expected to be stable, but a real rate of only 1 percent if inflation is expected to be 2 percent.)


In fact, the central bank only has to promise to raise inflation and be believed — that’s enough to change real rates. This is a promise a central bank, and only a central bank, is in a position to make.


Could it therefore make sense for the Federal Reserve to promise, say, three years of 4 percent inflation as a way to drive real short-term interest rates lower? Theoretically, it turns out, the answer is yes. Yet the idea fills most central bankers, raised on the consensus forged in the 1980s, with dread.


The dread is understandable. If higher inflation becomes entrenched, bringing it down again may require a policy-induced recession. Any central banker will tell you that anchoring inflation expectations is vital for economic stability. Few want to be suspected of even considering a controlled dose of higher inflation — in fact many would say there is no such thing.


This thinking is counterproductive. Modern central banks pay lip service to the idea of transparency and insist they want their actions to be better understood. When it comes to discussing the trade-off between inflation and a more rapid recovery, they prefer to look away.


Lately, however, this reluctance has collided with the inescapable reality that, with all the advanced economies growing so slowly, maintaining or increasing monetary stimulus through QE is necessary. At the same time, central banks know that doing QE while promising to keep inflation very low is partly self-defeating.


Which brings us to the important question: As part of a new monetary-policy framework, can central banks openly aim for a therapeutic spell of higher-than-target inflation while containing the danger that the treatment would go too far?


The answer’s unclear, and the central banks’ unwillingness to confront the issue squarely isn’t helping the discussion. Our view is that a new target, tied to nominal incomes or to the level of future prices rather than the rate of inflation, could serve this purpose. (For a more thorough examination of this idea, see this accompanying essay.) There are good reasons to fear inflation. But no one should be so afraid that the subject can’t even be discussed.”

(emphasis added)

The fact that such arguments are forwarded in editorials and by many modern-day economists is simply stunning. Even if one knew absolutely nothing about economic theory and were instead only aware of economic history, one should recoil from such ideas. The very same argument – namely that there is a 'trade-off between growth and inflation', read: inflation can somehow 'create growth' – has for instance been made the members of France's revolutionary assembly in 1789. And for a while it seemed that they were right. These men were not stupid; they thought: 'all we will do is give the economy a brief shot in the arm, until it is revived again, then we will stop'. But then it turned out that they simply could not stop.

They then proceeded to deliver a historical achievement of some distinction: they completely destroyed two currencies in a row, back-to-back (the 'assignat' and the 'mandat'). For a detailed account of that experiment, see “Fiat Money Inflation in France” (pdf) by Andrew Dickson White. This is a text everyone should read – it stands as a monument for the folly of continually trying to 'stimulate' the economy by means of inflation. It also shows how well educated men can, in spite of actually knowing better, easily fall for committing this abject error.

As Ambrose Evans-Pritchard recently remarked quite correctly, the very same fate awaits the Fed and BoE's 'QE' operations. They will never be 'reversed'. In fact, prominent academic economists are making precisely this argument, namely that 'QE' should just be continued forever!

“Columbia Professor Michael Woodford, the world's most closely followed monetary theorist, says it is time to come clean and state openly that bond purchases are forever, and the sooner people understand this the better.


"All this talk of exit strategies is deeply negative," he told a London Business School seminar on the merits of Helicopter money, or "overt monetary financing".


He said the Bank of Japan made the mistake of reversing all its money creation from 2001 to 2006 once it thought the economy was safely out of the woods. But Japan crashed back into deeper deflation as soon the Lehman crisis hit.


"If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet of central banks," he said. This could done with a flick of the fingers. The debt would vanish.


Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. "We must tell people that if necessary, QE will turn out to be permanent."

(emphasis added)

That the dangerous quack quoted above is regarded as the “world's most closely followed monetary theorist” is shocking, though perhaps not surprising. We have previously discussed the question of central banks canceling the government debt they hold and what to expect from such a move. It doesn't need to be repeated, except to say that it would compound the foolishness of the current path of policy.

One really wonders why people have lately sold gold. It seems to make little sense in light of the widespread mainstream views on what the 'correct' monetary policy should consist of. Monetary cranks abound wherever one looks. The ultimate outcome of all this inflationary experimentation is preordained, so people have every reason to be very concerned about preserving the value their assets. Of course we are well aware that markets can often behave in an irrational manner for extended time periods. In fact, this is what allows astute speculators and investors to make profitable trades, as there are frequently opportunities created by the markets getting it wrong. In this particular case it is still astonishing, considering how blindingly obvious it is in which direction things are currently moving. Mr. Woodford wants to 'scare the horses'. We are wondering why they are not scared yet – but we suspect they will be soon enough.



Michael Dean Woodford, a proponent of 'QE forever' who even wants central banks to cancel the government debt they hold, thus enshrining the inflation of recent years irrevocably.

(Photo via The Washington Post)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Dr. Richard Head's picture

I wonder how well this quack is living now and how well he will be living 10 years from now.

Abraxas's picture

That doesn't matter richard. I want it all and I want it now.

ACP's picture

Step right up, ladies and gentlemen!

With this magic bottle of QE, all your ills will be cured!


You mean, that kinda, snake-oilish quackery?

Edit: Due to this quackery, looks like some cities/neighborhoods are starting to go private with their police. So when does Omni Consumer Products start running Detroit PD?

flacon's picture

Pee H. Dee from an accredited Ivy League University. Anything you say can and will be infallibly divine. 

sunaJ's picture



"One really wonders why people have lately sold gold. It seems to make little sense in light of the widespread mainstream views on what the 'correct' monetary policy should consist of. Monetary cranks abound wherever one looks. The ultimate outcome of all this inflationary experimentation is preordained, so people have every reason to be very concerned about preserving the value their assets. Of course we are well aware that markets can often behave in an irrational manner for extended time periods. In fact, this is what allows astute speculators and investors to make profitable trades, as there are frequently opportunities created by the markets getting it wrong. In this particular case it is still astonishing, considering how blindingly obvious it is in which direction things are currently moving. Mr. Woodford wants to 'scare the horses'. We are wondering why they are not scared yet – but we suspect they will be soon enough."

Is Mr. Tenebrarum employing satire here?  Or is he with blissful ignorance demonstrating the discomfort one has when they fail to see the difference between the value of physical custody and paper/digital "prices"?  Bravo, either way.

Precious's picture

Woodford looks like he just had a bowel movement in his pants.

otto skorzeny's picture

you're right-he does look jew-y

MisterMousePotato's picture

Holy shit.

You'd think that someone of Einstein's intelligence woulda been a little more certain about human stupidity.

BobPaulson's picture

I agree that most people are idiots, but you may have gotten more takers if the sale looked legit. Most people were suspicious something was up or they were being conned.

Ignatius's picture

"One really wonders why people have lately sold gold."


"Who shorts a bull market?"  -- Paul Craig Roberts


A wise man once said

Some men rob you with a fountain pen

Didn't take too long to figure out

Just what he was a-talkin' about

-- Bob Dylan

Precious's picture

"I sold that gold 'cause I needed the money..." -- Bob Dylan

Ghordius's picture

Gold price? imho the ugly truth is that the paper price has it's own "logic" - meanwhile corrent physical demand is heavely influenced by the saving preferences of Indians and Chinese, followed distantly by Turkic countries, Arabs and Russians, followed by other Eurasians

Professorlocknload's picture

Of course the debt will be burned. It was the plan from the start. Can't understand why no one can figure that out.

When TARP was passed, what little was left of the Market Economy ended. We now have a Government Command system very similar to Communist China and the old Soviet Union. I mean, complete with verbiage like "five year plan" and "social justice."

The Frogs got boiled and didn't feel a thing.

It all ended in 07, 08. What you see is a facade.

It was Habeas Corpus and Posse Comitatus, first. The Freedom of Information Act is next. Then we go back into the dark. New New Deal comes to mind.

The POTUS candidate who "wins" (probably already decided) 2016 will be a Populist Fascist Tyrant, riding in on a White Horse, disguised as a Champion of the Little People. Then, it's finished.

If we even make it that far.

Other than that, how was the play, Mrs. Lincoln?

Galt/Rearden 2012


HardAssets's picture

Yes, its really quite remarkable. 'America' became the worlds premier New Rome/fascist Nazi police state while her purposely dumbed down citizens believe themselves Free and spreading freedom around the world. The next prez elected may be a former military man. (Americans have been taught to pay homage to the military. Afterall, thats what "supporting the troops" is all about.)  In the name of 'national security' the country will become an obvious police state. - - After the last world war, Germans were asked how they let it happen. How did they put a madman in power which lead to so many innocent people killed & their nation destroyed ?   Ask 'conservatives' how they allowed government to get so big. Ask 'liberals' how they allowed so many wars to be fought.   . . . . this is how it happens

Diogenes's picture

Herr Goering how did you get the people to go along with starting WW2?

What have the people got to say about it? Why should some poor rube want a war when the best he can hope to get out of it is to come home in one piece?

If you want a war you start one. Then you say anyone who opposes it is unpatriotic. It's the same in every country.

Diogenes's picture

The German people never put Hitler in power. In the 1932 election they chose Hindenberg as president, rejecting Hitler. Hitler then finagled the appointment of  Chancellor.

2 years later Hindenberg died and Hitler succeeded him.  Hitler abolished the office of president entirely, and replaced it with the new position of Führer und Reichskanzler ("Leader and Reich Chancellor"), cementing his dictatorship.

He then faked up an arson attack on the Reichstag and used it as an excuse to impose martial law. This put Germany under the control of the military with Hitler as its head. Civil law was suspended during the emergency which lasted for 11 years. During this time there were no elections and Hitler was absolute dictator, maintained in power by the Gestapo, SS, and the full weight of civil and military authority. The people never had anything to say about it if they knew what was good for them. If they spoke out anyway it was too bad for them.

HardAssets's picture

The point is that it always comes down to the people. As Etienne de La Boetie wrote about in various works including 'The Politics of Obedience: The Discourse of Voluntary Servitude', one man or a small minority of men cannot make an entire population do what they do not want to do. These authorities are always vastly outnumbered. People are their own prison guards. It is from the population that the police, military, and other enforcers come. Some of these enforcers are psychopath predators, but most must be indoctrinated into actually believing they are working for a greater good. If each individual person in Germany had somehow been able to magically see their own personal fate and that of all they loved in 1945, back in 1933 . . . they never would have allowed Hitler to remain in power. And those individuals making up 'the full weight of civil and military authority' would have been at the forefront in deposing him. People are in prisons of their own minds, and they provide the hands that physically cage themselves.

Lesson for us today:   We better get through to the dumb jocks in the military and police how they are being shafted like the rest of us. (As one coming from a military family and having served myself, I can use the 'dumb jocks' term. USMC General and two time Medal of Honor winner Smedley Butler said he didnt figure out how he had been used as muscle for the banker boys until after he retired from the Marine Corps. Ask most military officers, much less non-coms and enlisted people, to give you an explanation of what the Federal Reserve is and the true nature of money . . and I highly doubt they could do so. Like in other professions, such knowledge is outside their scope of training & experience.)

JR's picture

Germans were asked how they let it happen? As Lew Rockwell says, it's "The Murderous Fed…" Central banking and militarism are intimately linked.

It was greed and lust for world power cemented into the Treaty of Versailles that led to Germany’s 1923 hyperinflation and forced the impoverishment that led, ultimately, to WWII, as Lord John Maynard  Keynes said it would.

If you could ask Keynes if the U.S. (the Fed banking cartel that funds unended war) could be blamed for the Third Reich, he would say, “Yes.” Keynes warned that the heavy reparations Germany would be forced to pay until 1988 by the "Allied Powers" in the Treaty of Versailles after WWI, were excessive and counterproductive, and would force Germany, out of starvation and desperation, to war.

Excessive greed by nations run by market insiders is destructive.

And, still, the German people endured, and it was only through emergency laws that suppressed the opposition, and that outright hunted it down through NSDAP special laws, that Hitler technically got “elected” as Diogenes explains – i.e., after he already had “near dictatorship powers via nondemocratic means.”

As for the innocence of FDR and Winston Churchill, Sandmann (ZH blogger) exposes the real FDR: “If Roosevelt hadn't worked overtime to engineer war with Japan and thereby activate Germany's Treaty with Japan the US would have been stuck in Depression until Joe Stalin came to offer Franklin a New Deal - after all with Harry Dexter White (assistant secretary of the treasury actively involved in the Communist Party) and Morgenthau Jr.  (FDR’s Jewish secretary of the treasury whose Morganthau Plan implemented the postwar genocide of million of Germans to  prevent Germany from ever again being a military threat" and whose father was an advisor at the Paris Peace Conference on Eastern Europe and the Middle East) Uncle Joe had the Treasury sewn up - he even got US Dollar printing plates for the NKVD to use in Occupied Germany and make a fortune out of US taxpayers.”

It was Churchill and FDR at Yalta sitting alongside the man, Marshall Stalin (FDR’s Uncle Joe), who delivered a major chunk of Eastern Europe into despotic slavery.

As a result, the Polish boundary was moved westward, the remaining Polish government contained two-thirds Communists and the people of Eastern Europe were relegated to slavery and death (62 million of them) behind the Iron Curtain.

BobPaulson's picture

Those are some serious prognostications there. I agree something like that will happen but I actually think the mind controllers have way way more finesse now. The frog boiling analogy is best. There will be no sudden unveiling of swastikas on the stars and stripes. The continuous immersion into the matrix will proceed according to plans. At this stage in our downward spiral I think the only bumps will come from unpredictable derailing of the process.

For the record, I don't think there is a conspiracy executing this. I think there is decentralized school of thought that believes humans are too stupid to make decisions for themselves and need a grand master/parent to run the show. The size and complexity of the human system now seems to drive people to take shelter from reality and willingly forfeit their autonomy in favour of simplicity and comfort. The minority who are willing and able to avoid or reject subservience are either puppet masters or independents like some ZH readers. I know this sounds way too much like the Matrix movie, but I admit that for me that movie and Fight Club are excellent analogues to what is going on here.

IMHO the odds are in favour of the puppet masters, but the John Connors of the world have to keep on striving to "emancipate themselves from mental slavery". (mixed metaphor with Bob Marley and The Terminator but hey, that's postmodernism for ya...)

Tuffmug's picture

To call central bankers and these "economic theorists" who advocate for inflation and QE as quacks or cranks is to mislabel them. These people are thieves and conterfeiters who, hiding behind bogus economic theories, are plotting and stealing the accumulated wealth of the present and the future. Time we started calling a spade a spade. Bernanke's a thief! Draghi's a thief!, Woodford's a thief! Krugman's a thief!

jimmytorpedo's picture

I can't wait to be a trillionaire!

Jendrzejczyk's picture

Let's get crazy tonight and blow it all on a whole loaf of bread!

BigJim's picture

Or we could wait 'til tomorrow when it'll only buy half a loaf

ebworthen's picture

If the recovery is here, cut all QE and raise rates to 6%.

If money printing is good, send every taxpayer $1 Million each year for the next five years.

I mean, do they want the 70% consumer economy to recover or not? 

Why are they wasting the money buying derivatives (MBS's) and Treasuries to keep rates low?

Why give free money to the banks and bankers at 0.5% for them to lend out at 3.5%-29%?

Unless of course, the real goal is to crush the middle class while growing dependency serfdom and the elite's wealth.  I can't see any other effect from $6+ Trillion of FED gravy slathered on Wall Street.

Van Halen's picture

Ebworthen, absoultely fantastic point! If the recovery is good as we're being told by the driveby media, then why QE? wouldn't you like to see at least one of these Obamabots ask that question? Just once?

YHC-FTSE's picture

Spot on.

Just look at the Sole traders and small businesses who are killing themselves to feed the gaping mouth of the taxman, on the knife edge of juggling credit cards, then going bankrupt to join the entitlement brigade. Now we have the spectre of capital controls and confiscation, things can only get worse for anyone hasn't woken up to the fact that there is no middle in the class system. Just the top and the bottom. The most productive people are being bled dry to feed the multinationals in the markets and the bent gamblers sitting at the prop desks of banks. If this was fiction, you wouldn't be able to sell it because it is too implausible and surreal, yet we are living in it. 

You would think this constipated cretin and many others of his ilk would spend 60 seconds of their time to read about the abject failure of Japan's struggle with QE and no less than 8 stimulus plans between 1992 & 1999 totalling $850 billion+ in today's money, but no, the lesson they got was mooooaaaar. You couldn't make this up.

Prisoners_dilemna's picture

Isnt the intent and the reason for continued QE to create the wealth effect, to try to juice the 70% consumer economy by making "us" FEEL wealthy, which is accompanied by the secondary consequence of destorying the middle class, since the MCs nominal paper wealth isn't keeping up with 1980s john williams style CPI/inflation?

Remeber these guys "never saw it coming".
Do they really believe their false models and hocus pocus? And truly don't understand austrian economics? Or are they evil and out to destroy the middle class? I think theyre believers.

They really believe they know how to centrally plan an economy. I believe this about them because I used to be a flaming liberal like them. Its not my fault! I was raised in a state worshipping society, went to public school, son of a prison guard in New York. My point is I was taught wrong but I believed.

Until one magical day when a friend put "end the fed" by the Venerable Dr. Ron Paul into my hands. Now 6 years later at the ripe age of 31, and multiple boating accidents later, I'm as gold bugging, libertarian, state hating as they come. My point is I had to unlearn the state worshipping bull shit I was spoon fed, had to get rid of cable tv, and had to read, read more, then some more etc.

Now I have zerohedge in my daily life, I'm a self certified armchair austrian economist, and Im still prone to inexplicable fits of treading water as my floating vessel slips to the bottom beneath me.

Is bernanke evil and out to destoy the MC? Nah. He's just as clueless as I once was. He's as delusional as I was was. I think he just needs to be saved. Someone invite him to fightclub. We'll beat some liberty, homest money philosophy into him. He'll come around just like I did.

MilleniumJane's picture

Bernanke is an evil motherfucker.  He knows.

HardAssets's picture

Prisoners_dilemna - -  Do any research and its obvious that those that constructed the current system back in 1913 knew exactly what they were doing.

Do some research on the communist revolutions in Europe in 1848. Check out the stories of how many of those communists fled to America and became prominent in the Republican party (from Germany, Hungary, France, and other countries to a lesser extent). They were essential to getting Lincoln elected. Several union generals and an assistant Secretary of War were '48ers' from Europe. There were many of them with newspapers.  Then research the basic platform of communism including the establishment of a central bank, destruction of private property rights, establishment of mandatory public 'schools' of indoctrination, and destruction of local units of government so that an all powerful central government would reign supreme.  They were collectivists and thats the path they wanted to take the country down.

Is Bernanke clueless or evil ?  I don't know.  Many people in our day-to-day lives are just clueless. Afterall, they were subjected to those mind control 'schools'. But IMO we must not think that those with evil intent do not exist.  

Like you, it took me many years to 'see the light'. Though, I came at it from the right side of the political spectrum instead of the left.   Now I know 'left' and 'right' are illusions used to keep people divided and conquered. So my outlook is libertarian now.

P.S. - - - the 'communist' idea of a Workers Paradise after the State withered away is another con game.  Its always been about a small group of psychopath criminals living off the rest of humanity and spinning all sorts of stories to get people to enslave themselves. Those at the top in the USSR had limos and any Western goods they wanted. The rest of the people were in poverty. The various 'isms' are cons.

Hive Raid's picture

That's great, you understand Austrian economics.

You don't understand The Jew.

Ghordius's picture

+1 imho "real goal is to crush the middle class while growing dependency serfdom and the elite's wealth" is more like

1. keep the juice coming for the financial interests - particularly for megabank management

2. keep the laws and regulations and anti-regulations coming that favour "Big Biz" interests over "Small Biz" interests - megacorporations don't want a level field with SMEs, and both Wall Street & the City agree on this

3. keep key pressure groups appeased - see campaign money

4. Pay Lip Service ToThe Rest

the middle class - that still has some of it's former "privileges", btw - falls under "Regretfully Unavoidable Collateral Damage" in the above considerations

HardAssets's picture

IMO if you do any research on UN Agenda 21, the idea that the current plight of the middle class is an 'accident' or an 'unintended consequence' . . . is blown away.

Yeah, might sound 'kooky' to some here.   But just do the research first before making your mind up.

nmewn's picture

He looks like he just smelled a fart ;-)

Major Major Major's picture

... and he is trying to figure out what the odor reminds him of.

McMolotov's picture

He's quite the dandy. Looks like he could have been in one of the old Grey Poupon commercials (or rather Grey Poop-on).

McMolotov's picture

It should be obvious by now that the belief in centralized planning isn't monetary quackery at all; it's a well-orchestrated plan designed to enrich the few at the expense of the many.

It's easy to think these people are idiots. It's far more scary to think they know exactly what they're doing.

DosZap's picture

 It's far more scary to think they know exactly what they're doing.

Anyone on this site that thinks otherwise must be new, or an idiot.This a pre-planned event dudes n dudettes.

Poor Grogman's picture

Meticulously planned and carried out, all at your expense...

icanhasbailout's picture

Jamie Dimon 700% stars in Bond Purchases are Forever

supporting cast

Kevin Henry * Ben Bernanke * Timothy Geithner * Jon Corzine

OutLookingIn's picture


They scare the ROTC horse,

with a pistol, in Dean Wormer's office!

In that case... The economy falls over dead. Now look what you did!

Everyman's picture

What a nice picture of a complete asshole!

ziggy59's picture

Only idiots selling gold was and is, are the CBs...

Makes one wonder what deals were made with China, Russia, etc,.

Just Ice's picture

"Could it therefore make sense for the Federal Reserve to promise, say, three years of 4 percent inflation as a way to drive real short-term interest rates lower?"

Since they currently claim inflation is at 2%, why would promising 4% inflation drive rates lower?

Room 101's picture


"Obama budget to take aim at wealthy IRAs"

I'm sure this revelation will surprise ZHers. /s

(H/T Drudge)

otto skorzeny's picture

that's just double-talk for ALL I RAs