Robert Wenzel's 'David' Speech Crushes Federal Reserve's 'Goliath' Dream

Tyler Durden's picture

In perhaps the most courageous (and likely must-read for future economists) speech ever given inside the New York Fed's shallowed hallowed walls, Economic Policy Journal's Robert Wenzel delivered the truth, the whole truth, and nothing but the truth to the monetary priesthood. Gracious from the start, Wenzel takes the Keynesian clap-trappers to task on almost every nonsensical and oblivious decision they have made in recent years.

"My views, I suspect, differ from beginning to end... I stand here confused as to how you see the world so differently than I do. I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality."

and further...

"I scratch my head that somehow your conclusions about unemployment are so different than mine and that you call for the printing of money to boost 'demand'. A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%."

But his closing was tremendous:

"Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats."

The Full Speech is below:

Thank you very much for inviting me to speak here at the New York Federal Reserve Bank.


Intellectual discourse is, of course, extraordinarily valuable in reaching truth. In this sense, I welcome the opportunity to discuss my views on the economy and monetary policy and how they may differ with those of you here at the Fed.


That said, I suspect my views are so different from those of you here today that my comments will be a complete failure in convincing you to do what I believe should be done, which is to close down the entire Federal Reserve System


My views, I suspect, differ from beginning to end. From the proper methodology to be used in the science of economics, to the manner in which the macro-economy functions, to the role of the Federal Reserve, and to the accomplishments of the Federal Reserve, I stand here confused as to how you see the world so differently than I do.


I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality.


Please allow me to begin with methodology, I hold the view developed by such great economic thinkers as Ludwig von Mises, Friedrich Hayek and Murray Rothbard that there are no constants in the science of economics similar to those in the  physical sciences.


In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed.


There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.


And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist. It is as if one were to assume a constant relationship existed between interest rates here and in Russia and throughout the world, and create equations based on this belief and then attempt to trade based on these equations. That was tried and the result was the blow up of the fund Long Term Capital Management, a blow up that resulted in high level meetings in this very building.


It is as if traders assumed a given default rate was constant for subprime mortgage paper and traded on that belief. Only to see it blow up in their faces, as it did,  again, with intense meetings being held in this very building.


Yet, the equations, assuming constants, continue to be published in papers throughout the Fed system. I scratch my head.


I also find curious the general belief in the Keynesian model of the economy that somehow results in the belief that demand drives the economy, rather than production. I look out at the world and see iPhones, iPads, microwave ovens, flat screen televisions, which suggest to me that it is production that boosts an economy. Without production of these things and millions of other items, where would we be? Yet, the Keynesians in this room will reply, “But you need demand to buy these products.” And I will reply, “Do you not believe in supply and demand? Do you not believe that products once made will adjust to a market clearing price?”


Further , I will argue that the price of the factors of production will adjust to prices at the consumer level and that thus the markets at all levels will clear. Again do you believe in supply and demand or not?


I scratch my head that somehow most of you on some academic level believe in the theory of supply and demand and how market setting prices result, but yet you deny them in your macro thinking about the economy.


You will argue with me that prices are sticky on the downside, especially labor prices and therefore that you must pump money to get the economy going. And,  I will look on in amazement as your fellow Keynesian brethren in the government create an environment  of sticky non-downward bending wages.


The economist  Robert Murphy reports that President  Herbert Hoover continually pressured businessmen to not lower wages.


He quoted Hoover in a speech delivered to a group of businessmen:


In this country there has been a concerted and determined effort  on the part of government and business... to prevent any reduction in wages.


He then reports that FDR actually outdid Hoover by seeking to “raise wages rates rather than merely put a floor under them.”


I ask you, with presidents actively conducting policies that attempt to defy supply and demand and prop up wages, are you really surprised that wages were sticky downward during the Great Depression?


In present day America, the government focus has changed a bit. In the new focus, the government  attempts much more to prop up the unemployed by extended payments for not working. Is it really a surprise that unemployment is so high when you pay people not to work.? The 2010 Nobel Prize was awarded to economists for their studies which showed that, and I quote from the Noble press release announcing the award:


One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.


Don’t you think it would make more sense to stop these policies which are a direct factor in causing unemployment, than to add to the mess and devalue the currency by printing more money?


I scratch my head that somehow your conclusions about unemployment are so different than mine  and that you call for the printing of money to boost “demand”. A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%.


I also must scratch my head at the view that the Federal Reserve should maintain a stable price level. What is wrong with having falling prices across the economy, like we now have in the computer sector, the flat screen television sector and the cell phone sector? Why, I ask, do you want stable prices? And, oh by the way, how’s that stable price thing going for you here at the Fed?


Since the start of the Fed, prices have increased at the consumer level by 2,241% [3]. that’s not me misspeaking, I will repeat, since the start of the Fed, prices have increased at the consumer level by 2,241%.


So you then might tell me that stable prices are only a secondary goal of the Federal Reserve and that your real goal is to prevent serious declines in the economy but, since the start of the Fed, there have been 18 recessions including the Great Depression and the most recent Great Recession. These downturns  have resulted in stock market crashes, tens of  millions of unemployed and untold business bankruptcies.


I scratch my head and wonder how you think the Fed is any type of success when all this has occurred.


I am especially confused, since Austrian business cycle theory (ABCT), developed by Mises, Hayek and Rothbard, has warned about all these things. According to ABCT, it is central bank money printing that causes the business cycle and, again you here at the Fed have certainly done that by increasing the money supply. Can you imagine the distortions in the economy caused by the Fed by this massive money printing?


According to ABCT, if you print money those sectors where the money goes  will boom, stop printing and those sectors will crash. Fed printing tends to find its way to Wall Street and other capital goods sectors first, thus it is no surprise to Austrian school economists that the crashes are most dramatic in these sectors, such as the stock market and real estate sectors. The economist Murray Rothbard in his book America’s Great Depression [4] went into painstaking detail outlining how the changes in money supply growth resulted in the Great Depression.


On a more personal level, as the recent crisis was developing here, I warned throughout the summer of 2008 of the impending crisis. On July 11, 2008 at, I wrote:


SUPER ALERT: Dramatic Slowdown In Money Supply Growth


After growing at near double digit rates for months, money growth has slowed dramatically. Annualized money growth over the last 3 months is only 5.2%. Over the last two months, there has been zero growth in the M2NSA money measure.


This is something that must be watched carefully. If such a dramatic slowdown continues, a severe recession is inevitable.


We have never seen such a dramatic change in money supply growth from a double digit climb to 5% growth. Does Bernanke have any clue as to what the hell he is doing?


On July 20, 2008, I wrote:


I have previously noted that over the last two months money supply has been collapsing. M2NSA has gone from double digit growth to nearly zero growth.


A review of the credit situation appears worse. According to recent Fed data, for the 13 weeks ended June 25, bank credit (securities and loans) contracted at an annual rate of 7.9%.


There has been a minor blip up since June 25 in both credit growth and M2NSA, but the growth rates remain extremely slow.


If a dramatic turnaround in these numbers doesn't happen within the next few weeks, we are going to have to warn of a possible Great Depression style downturn.


Yet, just weeks before these warnings from me, Chairman Bernanke, while the money supply growth was crashing, had a decidedly much more optimistic outlook, In a speech on June 9, 2008, At the Federal Reserve Bank of Boston’s 53rd Annual Economic Conference [7], he said:


I would like to provide a brief update on the outlook for the economy and policy, beginning with the prospects for growth.  Despite the unwelcome rise in the unemployment rate that was reported last week, the recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly.  Indeed, although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.  Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.


I believe the Great Recession that followed is still fresh enough in our minds so it is not necessary to recount in detail as to whose forecast, mine or the chairman’s, was more accurate.


I am also confused by many other policy making steps here at the Federal Reserve. There have been more changes in monetary policy direction during the Bernanke era then at any other time in the modern era of the Fed. Not under Arthur Burns, not under G. William Miller, not under Paul Volcker, not under Alan Greenspan  have there been so many dramatically shifting Fed monetary policy moves. Under Chairman Bernanke there have been significant changes in direction of the money supply growth FIVE different times. Thus, for me, I am not at all surprised at the current stop and go economy. The current erratic monetary policy makes it exceedingly difficult for businessmen to make any long term plans.  Indeed, in my own Daily Alert on the economy [8] I find it extremely difficult to give long term advice, when in short periods I have seen three month annualized M2 money growth go from near 20% to near zero, and then in another period see it go from 25% to 6%.


I am also confused by many of the monetary programs instituted by Chairman Bernanke. For example, Operation Twist.


This is not the first time an Operation Twist was tried. an Operation Twist was tried in 1961, at the start of the Kennedy Administration [10] A paper [11] was written by three Federal Reserve economists in 2004 that, in part, examined the 1960's Operation Twist


Their conclusion (My bold):


A second well-known historical episode involving the attempted manipulation of the term structure was so-called Operation Twist.  Launched in early 1961 by the incoming Kennedy Administration, Operation Twist was intended to raise short-term rates (thereby promoting capital inflows and supporting the dollar) while lowering, or at least not raising, long-term rates. (Modigliani and Sutch 1966).... The two main actions of Operation Twist were the use of Federal Reserve open market operations and Treasury debt management operations..Operation Twist is widely viewed today as having been a failure, largely due to classic work by  Modigliani and Sutch....


However, Modigliani and Sutch also noted that Operation Twist was a relatively small operation, and, indeed, that over a slightly longer period the maturity of outstanding government debt rose significantly, rather than falling...Thus, Operation Twist does not seem to provide strong evidence in either direction as to the possible effects of changes in the composition of the central bank’s balance sheet...


We believe that our findings go some way to refuting the strong hypothesis that nonstandard policy actions, including quantitative easing and targeted asset purchases, cannot be successful in a modern industrial economy.  However, the effects of such policies remain quantitatively quite uncertain.


One of the authors of this 2004 paper was Federal Reserve Chairman Bernanke. Thus, I have to ask, what the hell is Chairman Bernanke doing implementing such a program, since it is his paper that states it was a failure according to Modigliani, and his paper implies that a larger test would be required to determine true performance.


I ask, is the Chairman using the United States economy as a lab with Americans as the lab rats to test his intellectual curiosity about such things as Operation Twist?


Further, I am very confused by the response of Chairman Bernanke to questioning by Congressman Ron Paul. To a seemingly near off the cuff question by Congressman Paul on Federal Reserve money provided to the Watergate burglars, Chairman Bernanke contacted the Inspector General’s Office of the Federal Reserve and requested an investigation [12]. Yet, the congressman has regularly asked about the gold certificates held by the Federal Reserve [13] and whether the gold at Fort Knox backing up the certificates will be audited. Yet there have been no requests by the Chairman  to the Treasury for an audit of the gold.This I find very odd. The Chairman calls for a major investigation of what can only be an historical point of interest but fails to seek out any confirmation on a point that would be of vital interest to many present day Americans.


In this very building, deep in the underground vaults, sits billions of dollars of gold, held by the Federal Reserve  for foreign governments. The Federal Reserve gives regular tours of these vaults, even to school children. [14] Yet, America’s gold is off limits to seemingly everyone and has never been properly audited. Doesn’t that seem odd to you? If nothing else, does anyone at the Fed know the quality and fineness of the gold at Fort Knox?


In conclusion, it is my belief  that from start to finish  the Fed is a failure. I believe faulty methodology is used, I believe that  the justification for the Fed, to bring price and economic stability, has never been a success. I repeat, prices since the start of the Fed have climbed by 2,241% and there have been over the same period 18 recessions. No one seems to care at the Fed about the gold supposedly backing up the gold certificates on the Fed balance sheet. The emperor has no clothes.  Austrian Business cycle theorists are regularly ignored by the Fed, yet they have the best records with regard to spotting overall downturns, and further they specifically recognized the developing housing bubble. Let it not be forgotten that in 2004, two economists here at the New York Fed wrote a paper [15] denying there was a housing bubble. I responded to the paper [16] and wrote:


The faulty analysis by [these] Federal Reserve economists... may go down in financial history as the greatest forecasting error since Irving Fisher declared in 1929, just prior to the stock market crash, that stocks prices looked to be at a permanently high plateau.


Data released just yesterday, now show housing prices have crashed to  2002 levels.


I will now give you more warnings about the economy.


The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or,  if you stop printing, another massive economic crash will occur. There is no other way out.


Again, thank you for inviting me. You have prepared food, so I will not be rude, I will stay and eat.


Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats.

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ghengis86's picture

Fuck you Bernanke!

Mr Lennon Hendrix's picture

How did the microphone not go dead?

jcaz's picture

Robert Wenzel Found Dead Friday Night.....

Xibalba's picture

heart attacked, Breitbart style.  

MillionDollarBonus_'s picture

I am absolutely shocked at 'Robert Wenzel's' remarkable display of ignorance. Where do I even start? Well I guess I can start with this astonishingly ignorant proposition:


“There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time.”


This view ... the view that there has to be a right and wrong answer to everything - that things have to be either true or false, is typical of purist libertarians. The truth is that value is subjective, and hence we need to allocate resources according to the preferences of the population. The questions is, who gets to allocate resources? Should they be allocated according to the preferences of ignorant and uninformed ‘market participants’? Or should they be allocated by experts and professionals with a superior knowledge of economic principles? I think the answer is obvious.

NotApplicable's picture

Nice job of contorting ideas. You almost got me to bite! (as it sounds like Krugman copypasta)

Manthong's picture

“delivered the truth, the whole truth, and nothing but the truth to the monetary priesthood

May I suggest that “Monetary Morlocks”  is a  more apt description of that audience.

brockhardman's picture

@MillionDollarBonus - Full of sound and fury, signifying nothing.  I am not even sure that what you said makes any sense.  This might be the most epic speech ever delivered to a group of sociopaths...ever.  The only reason that someone would not appreciate this masterpiece is if they too were in a career that receives million dollar bonuses.  Oh Fu#k, what is your screen name again?....

economics9698's picture

I think MDB works at the BLS.  Its in his blood.

beemasters's picture

What will happen to all those two-legged rats now if they close the Fed? Any research lab willing to take them?

Pinto Currency's picture



The "experts" and "profeesionals" of the Federal Reserve have shown themselves to be demolition experts and general incompetents. 

von Mises and the Austrian School have showed that "experts" cannot hope to allocate resources remotely effectively resulting in the decline and ultimate destruction of central planning systems and societies.

It is amazing to hear rabble above and below suggest that expert central planning is a good idea. Your next up, expert crack smoking to improve health?


GetZeeGold's picture



Are you really planning on taking on the crack lobbyists? 

Deo vindice's picture

Fortunately not so much 'sound', and hardly any 'fury'.

Thankfully there is no sound in reading typed characters.

object_orient's picture

Scott Horton interviews Robert Wenzel 4/26/12 about his Fed speech, here.

economics9698's picture

Was this speech for real?  Did he give this speech to the thieves at the Fed?  Maybe the noose he speaks about is the destiny of the bankers he was speaking to.

newworldorder's picture


He is referring to mathematical and scientific constants that exist and are not subject to interpetation - 2+2+4.

The High priests of voodo economics, once obtaining the exalted title of PhD think themselves equal to engineers, scientists and mathematicians. They are not equal. They are pretenders. Most have not worked at any meaningfull job in their lives.

NotApplicable's picture

Protip: They aren't the only pretenders.

MillionDollarBonus_'s picture

Well, as a moral nihilist and subjectivist, I simply have to disagree. Economics doesn't have to be about truth and falsehood. It can also be about how resources should be allocated. The only important thing is that resources are allocated by learned intellectuals, rather than the general rabble. Contrary to populist doctrine, not all preferences are equal: the preferences of experts are more important than those of common people, and this should be reflected in the structure of society.

LynRobison's picture

You are a "moral nihlist and subjectivist", and you are also an elitist. You say, "The only important thing is that resources are allocated by learned intellectuals, rather than the general rabble."  You don't think the market should decide where capital resources are allocated? In your elitist mind, who gets to pick these "learned intellectuals" who get to do the resource allocations? You no-doubt hope that it will be some of the powerful people whom you are obviously trying to kiss up to. You discredit that American flag you use as your icon. 

AldousHuxley's picture

it is simply not possible for general rabble to vote on every issue and resource allocation.

some central governance is inevitable. but commoners can decide whom to have that power and how much of that power should be divided.


masses tend to vote in good looking and lying dumbasses (actor types) who promise the moon, give away free cheap stuff in the short term while they abuse their power, and then end up screwing all in the long term.


I think you forget that ZeroHedge readers are the learned intellectuals who have learned a lot of shit reading ZH.

You also forget that general rabble is more akin to Sarah Palin than anyone who even cares to learn and think.

LynRobison's picture

It is indeed possible "for general rabble to vote on every issue and resource allocation." In a free market economy, every individual (rabble and learned intellectual alike) gets to allocate their own money wherever they think it ought to go. That is how financial issues are decided and resource allocation is accomplished, and it is highly efficient, because if individuals are wise in the way they allocate their money, they end up with additional financial resources, and if they are not, a fool and his money soon go seperate ways.


Instead of a free market economy, you seem to be advocating government-controlled capitalism. There is a word for that. It is called "fascism". 

dougngen's picture

the "rabble" you speak of is the market idiot!!

RichardP's picture

Methinks he was speaking with tongue planted firmly in cheek.  Of course, learned intellectuals know better how to allocate my capital than I do.  Not.

ceilidh_trail's picture

Daldo- funny you do a cheap shot at Palin but ignore the elephant/mouse/rat in the room. Huh? No mention of obammy and the girls? I'll put my vote in with whomever serves my long term interests- free market wins in politics as it does in capitalism. You statist pseudointellectuals only think you have a clue. Word- you don't.

AldousHuxley's picture

there's experts (individual) , general population(society) and groups of experts (special interests).

problem with resource allocation is that all 3 groups are right in asserting their needs. When the needs conflict upon each other, you end up with political solutions.


Fed wants to help general population which includes irresponsible idiots.

special interest of capitalists and savers want high interest low money supply environment.

then there's the average american with some savings but also need to work as well.


Bernanke's job is like trying to figure out how much money you want to leave for each of your kids.

Lord Koos's picture

The real Aldous Huxley was about 1000% smarter than you.

debtandtaxes's picture

and now we know who you work for...

if you think you are "different" from the "common people" wait until your elitist friends happily confiscate everything you ever worked for

Incubus's picture

is that even the same goddamned MDB?  The name is different, isn't it? 



hangemhigh's picture

@ MDB     Fri, 04/27/2012 - 17:15 | 2381163

 "Economics doesn't have to be about truth and falsehood. It can also be about how resources should be allocated. The only important thing is that resources are allocated by learned intellectuals, rather than the general rabble."

yo, mdb....i'm with you, dawg. who needs all of this useless blather about constants and absolutes. who needs a stinking market hung  up on simple shit like supply and demand and price discovery. 

value is a subjective imperative. that's why the herd is always looking for a virtual pasture with greener gotta graze that greenery then move on, dude whatever comes next............

We skipped the light fandango
turned cartwheels 'cross the floor
I was feeling kinda seasick
but the crowd called out for more
The room was humming harder
as the ceiling flew away
When we called out for another drink
the waiter brought a tray

And so it was that later
as the miller told his tale
that her face, at first just ghostly,
turned a whiter shade of pale 


economics9698's picture

I think MDB is being sarcastic, just a guess.

slowimplosion's picture

It's amazing to me how many folks don't get what MDB is doing.  Kinda scary actually.

BoNeSxxx's picture

MDB is at best a troll and at worst a plant.

It's been said before but needs to be repeated so that we don't heve to sift through 8 pages of drivel every time MDB posts...




Although I must admit, he is pretty damn funny sometimes...

Deo vindice's picture

@MDB  you call yourself a "moral nihilist and subjectivist".

That is hardly something I would boast about. And certainly nothing I would go public about.

Are you kidding's picture

In theory reality no. All the great civilizations START off like that, idealistic, utopian...and then in a few years REAL people start running things as the founders die off...the beginning of the end. Greed takes over and before you know we are.

I like your posts, they're right out of the "book of theories", great for discussion but nothing else...the real world is full of barbarous idiots and that's where academia breaks down.

matrix2012's picture

@MDB.. and if the BANKSTERS ( / learned intellectuals / whatsoever label...) can't achieve their resource allocation within the "civilized" ways, they have their arming division in the PENTAGUN and its crooks in NEITOW to accomplish the forceful allocation in the other ways :D

LynRobison's picture

MDB, I am absolutely shocked that you are shocked. No, wait... actually I am not surprised at all, because you are nothing but a shill for the financial status quo. Whoever is paying you to try to influence the readers of ZH needs to fire your ass, because they are wasting their money. 

Incubus's picture

On that note, if any potential person/organization wants to pay me to spew my drivel on this blog, just go ahead and tell me.


I can start immediately.  I'm sure I can put a little more heart into my comments if I'm being paid to do it. 

lightning's picture

He didn't say there had to be a "right or wrong answer".  He merely pointed out that scientific equations are based on constants.  He acknowledges that in economics there are no constants, hence you can't make economics into a science.  Also isn't the "market participants" members of the very same population whose preferences resources should be allocated by?  I thought supply and demand was how value of products produced was determined.  

MillionDollarBonus_'s picture

"I thought supply and demand was how value of products produced was determined."

You're right - this is still true to some extent. And it needs to change. It is simply insane to propose that a redneck nascar-watching libertarian has more valuable preferences for the consumption of goods and services than an esteemed Ivy League economist. Prices should be mandated by experts, should not be 'set' by ignorant 'market participants'.  

AldousHuxley's picture

government controls the environment which supply and demand is played out.


I also agree that masses are ignorant (not stupid but doesn't have all of the information to make informed decisions) and thus poor voters of demand.


That's why educated and critical thinking populus is important.  Dumbasses are easily fooled into demanding something bad.

Rrednecks spend more money on Nascar and cheap entertainment than education for their children which will allow them better lives. But then that means those kids leave the trailers into better places to live, so those redneck parent's interest is to keep their kids dumb and close by.



dougngen's picture

well you ivy league fucktards don't even know what the market is!! you can set the price of gas at $2 bucks and I will buy if from you and sell it at the "real" market price! whatever the " market" will pay! you ivy league douche.

AldousHuxley's picture

only the ivy "fucktards" get to work at goldman sachs and learn the real truth about our "markets". when they are manipulating the market price, how can they not know. That's part of the reason why they get paid so much. To keep their mouth shut.

but not the ivy fucktards that go become doctors. smart but don't know how the real world works.


price of gas is set by what government elites ask of from Saudi elites for giving military aid.

ceilidh_trail's picture

You really do not believe this, do you? I'll bet you have an isomethingy...

LynRobison's picture

Who are you to decide and then dictate how anyone else ought to spend their money? Elitists like you are the reason the revolutionary war was fought.