"It" Happened

Remember this speech?

The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself. The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

Bawahahahahahaha.....

Well, PPI down 3.5%, but of course "core" was up. 

Retail sales, however, were down 1% for March.  Why?  Because deflation is happening, despite Bernanke's claim that he could "stop it" with his mythical "printing press."

Let's take another look in that "seminal piece of horse manure":

The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand--a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.¹ Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending--namely, recession, rising unemployment, and financial stress.

Right.  And what led to that BEN?

You and your predecessor, Alan Greedspan, er, Greenspan.

Let's cut the crap, shall we?

You and your predecessor blew a huge credit bubble.  You either knew or should have known that this was a generational event.  The chart below didn't happen over a day or two:

Gee, from about the end of the 1981 recession, what happened Ben?

You and your predecessors blew credit bubbles.  You intentionally promulgated an "easy money" policy that in concert with intentional refusal to regulate - part of your job - led to an insane spiral of credit vastly in excess of GDP growth.  In short, you ignored this part of what you admit is one of your "most serious" mandates:

Second, the Fed should take most seriously--as of course it does--its responsibility to ensure financial stability in the economy.

Didn't matter so long as your buddies were "making" hundreds of billions of dollars in false profits and emitting financial statements that were enabled through fraud, avarice and lies, right?

But even a greedy Fed Chairman has to face the math eventually; irrespective of what you want, irrespective of what your buddies continue to claim in the media as they all scream "not my fault!" the fact of the matter is that the deterioration of credit quality in lending throughout the economy was no accident - it was an intentional act promulgated by greed and fraud.

The Fed, as the actor at the center of the universe of lending, has data that nobody else has.  The data was right in front of you, reported not only to you but in the media every day.  Home prices rising at three, four, five times incomes.  Lending "standards" consisting of whether the borrower could fog a mirror and intentional refusal to verify statements made by borrowers.

All facts you were aware of - and willfully ignored.

Sustained deflation can be highly destructive to a modern economy and should be strongly resisted.

Sustained deflation occurs when credit expansion reaches or exceeds it's mathematical limit.  Your buddies in the banking system reached that limit several years ago as we entered the 2000-2003 recession; a limit that was able to be approached and in fact exceeded as a direct consequence of regulatory changes made at the behest of the banking system and with the approval of The Federal Reserve.

Then, in 2004, the wall was again hit, and the Investment Banks, led by then-chairman of Goldman Sachs Henry Paulson (later elevated to Treasury Secretary) came to Congress and the SEC and asked that leverage limits be removed.

As I have pointed out repeatedly this was the industry's second trip to Capitol Hill to ask for this, with the first being rebuffed four years prior.

The Fed did not oppose or step in to stop this request, and it was (foolishly) granted.

It was, in fact, the intentional removal of regulatory limits, including but not limited to leverage limits on the investment banking industry, that led to the final "blowoff" phase of the housing bubble from 2004-2006 - hyperinflation of house prices - and thus created the conditions for the severe deflation we are now experiencing in the housing sector and collapse in aggregate demand.

Deflation happens after hyperinflation Ben.  It always has and always will, and it is when the regulatory function of central banks, including The Fed, are willfully abrogated that the hyperinflation that must precede deflation, driving the underlying math behind credit into a range where deflation is inevitable, can and does occur.

"It" has happened Ben, and both you and Greedspan are directly responsible for "it".

Take a bow.