Daily Market Update

‘Helicopter’ Ben gets schooled by Ron Paul

Presidential Candidate Ron Paul in his role as member of the House Banking Committee got a chance to question Federal Reserve Chairman Ben Bernanke on the current state of the economy.

‘Helicopter’ Ben, as he is known in some quarters due to a reference he made in a speech to a statement made by Milton Friedman about using a “helicopter drop” of money into the economy to fight deflation, could be said to be at the opposite end of the monetary spectrum to Ron ‘Gold’ Paul (interestingly in the same speech Bernanke noted that “people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.”)

Ron took the opportunity to school him on basic monetary theory:

“…And that is why the conventional wisdom is everybody refers to inflation as rising prices instead of saying inflation comes from the unwise increase in the supply of money and credit.

And when you look at it — and I mentioned in my opening statement that M3, now, measured by private sources, is growing by leaps and bounds. In the last two years, it increased by 40, 42 percent. Currently, it’s rising at a rate of 16 percent.

That is inflation. That will lead to higher prices.”

“PAUL: But your achievement — we have now PPI going up at a 12 percent rate. I would say that doesn’t get a very good grade for price stability, wouldn’t you agree?

BERNANKE: No, I agree. It’s not — the more relevant one, I think, is the consumer price index, which measures the price consumers have to pay, and that was, last year, between 3.5 and 4 percent. And I agree, that’s not a good record.”

The full transcipt is available here:
http://www.washingtonpost.com/wp-srv/business/documents/bernanke022708.html

Mark OByrne

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