Third Anniversary of Stupendously Wrong Inflationista Letter

[oldfart]

Lest we forget!

To: Chairman Ben Bernanke
Federal Reserve
Washington, DC

Dear Mr. Chairman:

We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing&#8221 should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.

We subscribe to your statement in The Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.” In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

Respectfully,

Cliff Asness
AQR Capital

Michael J. Boskin
Hoover Institution, Stanford University
Former Chairman, President’s Council of Economic Advisors

Richard X. Bove
Rochdale Securities

Charles W. Calomiris
Columbia University Graduate School of Business

Jim Chanos
Kynikos Associates

John F. Cogan
Hoover Institution, Stanford University
Former Associate Director, U.S. Office of Management and Budget

Niall Ferguson
Harvard University
Author, The Ascent of Money: A Financial History of the World

Nicole Gelinas
Manhattan Institute & e21
Author, After the Fall: Saving Capitalism from Wall Street—and Washington

James Grant
Grant’s Interest Rate Observer

Kevin A. Hassett
American Enterprise Institute
Former Senior Economist, Board of Governors of the Federal Reserve

Roger Hertog
Hertog Foundation

Gregory Hess
Claremont McKenna College

Douglas Holtz-Eakin
Former Director, Congressional Budget Office

Seth Klarman
Baupost Group

William Kristol
Editor, The Weekly Standard

David Malpass
GrowPac, Encima Global
Former Deputy Assistant Treasury Secretary

Ronald I. McKinnon
Stanford University

Joshua Rosner
Graham Fisher & Co., Inc.

Dan Senor
Council on Foreign Relations
Co-Author, Start-Up Nation: The Story of Israel’s Economic Miracle

Amity Shlaes
Council on Foreign Relations
Author, The Forgotten Man: A New History of the Great Depression

Paul E. Singer
Elliott Management Corporation

John B. Taylor
Hoover Institution, Stanford University
Former Undersecretary of Treasury for International Affairs

Peter J. Wallison
American Enterprise Institute
Former Treasury and White House Counsel

Geoffrey Wood
Cass Business School at City University London

Obviously the predicted inflation never materialized. The most interesting point however, is that in the three succeeding years NOT ONE SINGLE SIGNER of the letter has admitted publicly that they were wrong or has altered their narrative to admit their model was flawed. I guess being a debt alarmist and deficit hawk means never having to say you were wrong.

P.S. They never provided a model (because one doesn't exist) that predicts inflation resulting from monetary policy without boosting income and employment.

 

[Moonglow]

Depends what you have to sell.

 

[TakeAStepBack]

Where is the prediction timeline of inflation and debasement? Thsi si the same tired argument that shows up from FR and Keynes supporters time and time again. I see no prediciton that states by ___________ inflation and debasement become a serious problem due to FR monetary policy.

Peter Schiff and Ron Paul were laughed off numerous pundit talk shows back in the early 2000s over the housing bubble that materialized several years later too. Should we bring them up every year to vindicate their prediciton and to be apologized to? Of course not. Right is right, wrong is wrong.

You cant say wrong on a time scale never gioven.

 

[JakeStarkey]

"I see no prediciton that states by ___________ inflation and debasement become a serious problem due to FR monetary policy."

We hear gloom and doom inflation and debasement on the board all the time.

And nothing has come of it.

Let's move on.

 

[TakeAStepBack]

Nothing has come of it, yet. You're making time based assumptions. Then again, you're mental so I dont see how you're relevant to a topic this advanced. You cant even say "reactionary right" in here.

Yes, lets move on, Fake. Lets move on to asking the OP why he's trying to act like a prediciton was given when one wasnt, instead of having the voices in your head type out.

 

[oldfart]

Where is the prediction timeline of inflation and debasement? Thsi si the same tired argument that shows up from FR and Keynes supporters time and time again. I see no prediciton that states by ___________ inflation and debasement become a serious problem due to FR monetary policy.

Peter Schiff and Ron Paul were laughed off numerous pundit talk shows back in the early 2000s over the housing bubble that materialized several years later too. Should we bring them up every year to vindicate their prediciton and to be apologized to? Of course not. Right is right, wrong is wrong.

You cant say wrong on a time scale never gioven.

You are nitpicking. And either disingenuous or ignorant. Three years is forever in macro predictions of inflation; effects of monetary policy should show up within two quarters. You act like Paul Volker is the Fed chairman.

 

[oldfart]

Yes, lets move on, Fake. Lets move on to asking the OP why he's trying to act like a prediciton was given when one wasnt, instead of having the voices in your head type out.

Anyone reading the letter then or now took it as a prediction of immanent inflation. It makes no sense read any other way. Only hacks like you deny the obvious so you can live in your state of denial. You are embarrassing yourself with this argument that the letter is not a prediction.

Presuming that you are one of those who believe that QE will eventually be manifested in inflation and not in income and employment growth, would you identify the model that predicts such a result? And explain the mechanism?

 

[TakeAStepBack]

3 years is forever in macroeconomics?
Is that why a housing bubble that was instigated by monetary policy showed up almost 7 years after it was predicted?

Who is ignorant now?

Predictions like these without a timescale can not be held up as "see you were wrong!" There was no timeline established for the effects of FR monetary policy regarding inflation and debasement. They simply state that
"The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment."


No timeline, they aren't wrong. You want them to be wrong to vindicate the current course, but that doesn't mean you have a case for the authors to apologize for their statement. It's a pathetic attempt to undermine opposition to Keyens stimulus voodoo.

 

[TakeAStepBack]

On top of that, where are the results of these purchases increasing income and employment? How many years in of QE are we now? What about the 3 year marker you established for the effects of monetary policy?

 

[TakeAStepBack]

The recovery with increased income and employment is just around the corner! Any day now! Should kick in like a mule kick to the nuts!

 

[JimmieD]

Predictions like these without a timescale can not be held up as "see you were wrong!" There was no timeline established for the effects of FR monetary policy regarding inflation and debasement. They simply state that

So it's really just a useless conjecture. I can make a similar statement by saying, "someday there will be a natural disaster" or "some day there will be war," nethier of which are of much use to anyone.

(Nevermind that the assertion is hardly fleshed out in the first place.)

"The planned asset purchases risk currency debasement and inflation."

Does it? Why?

No timeline, they aren't wrong. You want them to be wrong to vindicate the current course, but that doesn't mean you have a case for the authors to apologize for their statement. It's a pathetic attempt to undermine opposition to Keyens stimulus voodoo.

Is stimulus Keynesian? Milton Friedman was pro stimulus and can hardly be said to be Keynesian (BTW, Bernanke uses Milton Friedman's arguments as his justificaiton for QE). There are a lot of people around today that say "Keynesian" to mean "something I don't like."

 

[TakeAStepBack]

So it's really just a useless conjecture. I can make a similar statement by saying, "someday there will be a natural disaster" or "some day there will be war," nethier of which are of much use to anyone.

(Nevermind that the assertion is hardly fleshed out in the first place.)

I wouldn't call it useless. There are many ways that QE dangers inflation and debasement. There are plenty of arguments out there as to why. Not to mention plenty of historical record on using stimulus in the past and its outcomes. Is it a prediction? No, they are putting forh their opinion on the matter, however.

Does it? Why?

Again, there are many arguments why. Many. Are you asking me to neatly order them here for you to investigate?

Is stimulus Keynesian? Milton Friedman was pro stimulus and can hardly be said to be Keynesian (BTW, Bernanke uses Milton Friedman's arguments as his justificaiton for QE). There are a lot of people around today that say "Keynesian" to mean "something I don't like."

Keynes certainly promoted the idea of government based stimulus in his work. Especially to "get the economy going".

 

[oldfart]

On top of that, where are the results of these purchases increasing income and employment? How many years in of QE are we now? What about the 3 year marker you established for the effects of monetary policy?

You might want to read what you write before posting; you seem to be confusing yourself. First I noted that the predicted inflation has not appeared after three years. Three years is the elapsed time since the letter was published, not a time frame I picked. You replied that three years was not long enough for inflation to become apparent. So how long do we wait before calling bullshit on a prediction that never happens? Forever?

I went on to answer that normal monetary policy (I had in mind mainly OMO) shows effects within two quarters. This is the standard the Fed uses and is commonly known by anyone who reads on monetary policy. Where did you get the idea that a longer period, beyond three years, is a suitable time frame for monetary policy?

The most obvious place you could have gotten this mistaken idea is from the people who believe that the bubbles from the Texas S & L lending bubble to the present are the result of lax monetary policy. That's a common mistake. These long lag times are an illusion; monetary policy could not cause such bubbles. I refer you to Larry Summers speech last week at the IMF Symposium. I am no LS fan, but his presentation reverted to the intellectual level that gained him is reputation to begin with and which has not been seen in about 25 years.

As to QE itself, three years ago we were in economic conditions not seen in 75 years. QE was at least a good experiment that proves that monetary policy in a liquidity trap is not very effective. In fact, it cannot be effective in creating inflation until AFTER it has ben effective in promoting growth and employment (where do you think inflationary pressures come from?) You made no comment on what model predicts a monetary action that does not raise income and employment but causes inflation. If you have an answer, I certainly would like to hear it.

 

[JimmieD]

Again, there are many arguments why. Many. Are you asking me to neatly order them here for you to investigate?

I just doubt many of them hold up since most arguments that I've seen (1) treat bank reserves as equivalent to cash in a vault waiting to be lent out and (2) define money too narrowly.

All those bank reserves the Fed creates will never leave the accounts at the Fed. I don't think a lot of people realize this.

Keynes certainly promoted the idea of government based stimulus in his work. Especially to "get the economy going".

So this means you do realize that Friedman also promoted stimulus (he even believed in an inflation target) and that Bernanke appeals to Milton Friedman's work to justify QE? It can hardly be said, if fact it would be plain wrong, to label Friedman and his fellow monetarists as "Keynesians." So like I said, a lot of people are using the term "Keynesian" to mean "something I don't like."

 

[SteadyMercury]

The inflation just around the corner thing has been ranted about by Ron Paul followers since about 2008, along with collapse of the dollar. Now their hero has had his net worth clipped by half due to a shitty portfolio narrowly focused on gold/silver mining stocks. Quite the wizard of finance.

 

[HenryBHough]

The $1 bill is soon to be obsolete. Replaced by a spiffy new Obama $3 note.

 

[TakeAStepBack]

You might want to read what you write before posting; you seem to be confusing yourself. First I noted that the predicted inflation has not appeared after three years. Three years is the elapsed time since the letter was published, not a time frame I picked. You replied that three years was not long enough for inflation to become apparent. So how long do we wait before calling bullshit on a prediction that never happens? Forever?

There was no prediction. They simply stated that QE runs the risk of inflation and debasement. It does. To rule this out is widely ignorant and stupid. You dont wait at all. You note theor opinion and move on with it in mind. You just want to say "Ha! You were wrong!" Unfortunately for you,
there was no prediction based on time frame. There really was no prediction at all.

I went on to answer that normal monetary policy (I had in mind mainly OMO) shows effects

within two quarters. This is the standard the Fed uses and is commonly known by anyone who reads on monetary policy. Where did you get the idea that a longer period, beyond three years, is a suitable time frame for monetary policy?

Through the historical record of observation. There are always consequences to central planning and they can show up years after the initial distortion. Central planners are simply ignorant to this fact.

The most obvious place you could have gotten this mistaken idea is from the people who believe that the bubbles from the Texas S & L lending bubble to the present are the result of lax monetary policy. That's a common mistake. These long lag times are an illusion; monetary policy could not cause such bubbles.

Nonsense. History isnt on your side here. The root cause of the housing bubble was artificially lowered interest rates. That monetary distortion took several years to follow through the business cycle.

 

[editec]

Where is the prediction timeline of inflation and debasement? Thsi si the same tired argument that shows up from FR and Keynes supporters time and time again. I see no prediciton that states by ___________ inflation and debasement become a serious problem due to FR monetary policy.

Peter Schiff and Ron Paul were laughed off numerous pundit talk shows back in the early 2000s over the housing bubble that materialized several years later too. Should we bring them up every year to vindicate their prediciton and to be apologized to? Of course not. Right is right, wrong is wrong.

You cant say wrong on a time scale never gioven.

TakeAStepBack has got it right, I think.

We can all predict correctly if we do not include TIMING.

For instance...I guarantee that the market will fall and fall stupendously

I just do not know when exactly.

 

[TakeAStepBack]

Where is the prediction timeline of inflation and debasement? Thsi si the same tired argument that shows up from FR and Keynes supporters time and time again. I see no prediciton that states by ___________ inflation and debasement become a serious problem due to FR monetary policy.

Peter Schiff and Ron Paul were laughed off numerous pundit talk shows back in the early 2000s over the housing bubble that materialized several years later too. Should we bring them up every year to vindicate their prediciton and to be apologized to? Of course not. Right is right, wrong is wrong.

You cant say wrong on a time scale never gioven.

TakeAStepBack has got it right, I think.

We can all predict correctly if we do not include TIMING.

For instance...I guarantee that the market will fall and fall stupendously

I just do not know when exactly.

But based on oldfart's logic, you've now made the prediciton today and therefore, in 3 years you'll have to apologize if it doesn't materialize. If it materializes in 5 years though, even thoug you were called out in three, you can bet guys like Oldfart will have a brand new excuse for the failure beyond your opinion. Making you wrong anyway. That's how Statist central planning lovers roll.

 

[oldfart]

Where is the prediction timeline of inflation and debasement? Thsi si the same tired argument that shows up from FR and Keynes supporters time and time again. I see no prediciton that states by ___________ inflation and debasement become a serious problem due to FR monetary policy.

Peter Schiff and Ron Paul were laughed off numerous pundit talk shows back in the early 2000s over the housing bubble that materialized several years later too. Should we bring them up every year to vindicate their prediciton and to be apologized to? Of course not. Right is right, wrong is wrong.

You cant say wrong on a time scale never gioven.

TakeAStepBack has got it right, I think.

We can all predict correctly if we do not include TIMING.

For instance...I guarantee that the market will fall and fall stupendously

I just do not know when exactly.

But based on oldfart's logic, you've now made the prediciton today and therefore, in 3 years you'll have to apologize if it doesn't materialize. If it materializes in 5 years though, even thoug you were called out in three, you can bet guys like Oldfart will have a brand new excuse for the failure beyond your opinion. Making you wrong anyway. That's how Statist central planning lovers roll.

First, I believe that different time frames, based on historical results, are appropriate for measuring effectiveness of economic policy. For OMO that is generally two quarters, for spending it is a bit longer. Policies designed to influence long term growth probably take a decade or longer. But the point is there is a difference between late and never.

If the letter was not intended to warn of imminent inflation, then what the hell was its purpose?