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Tuesday, April 21, 2009

A Genius From Harvard

I think most of you on here have given up on The New York Times as a source of objective facts or rational insight. One cannot deny however the window it gives to the minds of people currently in charge.

In the guise of a semi serious proposal, a prominent Harvard economist floated an idea , almost perfectly designed to toilet whatever limited confidence anyone could have in the value of our dollar and cause a panic of epic proportions.

The rub is that many people and companies after seeing the negative effects of their bad investments and often reckless consumer spending have decided to rebuild their balance sheets by saving. They understand that only rational investments which pay off in the future can be a possible way to future wealth. And they understand the extreme personal risk any person takes by spending money they don't have or taking on debts they can't repay.

Lucky for them, geniuses like Bernanke, Obama and their cheerleaders like Krugman and this guy are there to stop them. Already, Bernanke has dropped the Fed funds to almost zero, and engaged in the wholesale printing of money while it and other Federal agencies have purchased garbage bank assets, guaranteed toxic loans used HUD, and FHA, to pump out factory fresh bubble loans. (many of which default right away)

Meanwhile, Obama and the Democratic Congress have implemented a national debt explosion and an ever changing array of promised taxes and regulatory schemes almost sure to choke off market confidence and scare long term investors.

The latest concept is an attempt to force people to spend by proposing a scheme of outright government theft. Please, please, please-- take it seriously. This guy is seriously floating this idea in our so called-- paper of record.

"At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)

Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.

That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.

Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw — it’s a benefit."

He then of course quickly tries to run away from this explicit theft while endorsing a more subtle one-- inflation.

"If all of this seems too outlandish, there is a more prosaic way of obtaining negative interest rates: through inflation. Suppose that, looking ahead, the Fed commits itself to producing significant inflation. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend."

He seems to have gotten a lot of flack for this insanity and he defends his editorial here.

"If people are feeling poorer and want to save for the future, why should we stop them? Unless we think their additional saving is irrational, it seems best to try to funnel that saving into investment with the appropriate interest rate. And given the available investment opportunities, that interest rate might well be negative".( even he says there might not be that many good economic opportunities so you should invest in bad ones)

At no point does he appologize or even question the legal right of the government to steal the capital and savings of Americans and use them as rats in weird economic experiments.

Mish, who has a great economics blog has this to say.

"Even more galling than his blatant arrogance, Mankiw has no problems with theft. Because confiscating or expiring 10% of someone's money at will is theft of property, and would (at at least should) be a violation of the 5th amendment and due process of law. How anyone cannot see that is beyond me.

However, let's assume such a law was passed, and upheld by the courts. How would people react? Simple, they would pay off every debt they could as they would get an immediate 10% return on their money to do so! Thus credit would implode.

I repeat my call for Mankiw to resign or be fired. Mankiw is unfit to teach economics anywhere, let alone Harvard."

Was this Obama's economics teacher?

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