Wednesday, January 28, 2009

The perfect appointment

I have – framed above my desk – a $100,000,000 note – serial number AA23100220 and signed by Dr G Gono – the Governor of the Reserve Bank of Zimbabwe.

This – it seems – offers the solution to all our deflationary woes.

It seems that no matter how many dollars the Fed prints it can’t induce inflationary fears.  I suggested that the Fed rent a couple of hundred helicopters and (literally) push $2 billion out the window.  That I thought was irresponsible enough to raise inflationary expectations.

Alas real objections can be made – not the least that people might climb on rooftops looking for the booty – and slip and die.  I can’t morally justify the deaths.

But the Zimbabwe note has given me another solution – one that doesn’t require any helicopters or even the printing of any money.  It is more than sufficiently irresponsible – yet nobody will die.

Ben Bernanke should resign forthwith and Dr G Gono should be appointed as Chairman of the Fed Reserve.  

Nothing need change.  Monetary policy can remain in the effective hands of the other governors – but the appointment of Dr Gono will rapidly raise inflationary expectations – and the new inflationary expectations should induce the spending of the massive hoard of saved dollars – providing all the economic stimulus needed.

Dr Gono may be the wrong man for Zimbabwe – and the right hand man of a dictator.  But he is what America needs right now.  

Do you think we can get him confirmed?

John Hempton


Anonymous said...

you will get your wish soon

Anonymous said...

I think you've been sold the wrong medicine. Everybody going out and spending money is not the solution to the problem - it was the cause of the problem.

We have no money to spend, we already spent our future earnings via credit and now we need to pay it down.

We risk losing the assets we splurged our credit on if we don't make repayments.

John Hempton said...

I don't think I have been sold the wrong medicine. The party that has accumulated all those USD savings (and who would need to spend them in a hurry) is the Chinese.

This is a proposal to get the Chinese to fund the stimulus.


bizQuirk said...

I'd rather have Dr. Gonzo, he's a doctor of Journalism.

"...This man has a bad heart, but it's ok, I have plenty of medicine..."

babar ganesh said...

> This is a proposal to get the Chinese to fund the stimulus.

In that case it's not necessary to actually appoint Mr. Gono. Just plant a story in the Onion saying it's happened.

John Fischer said...

Helicopter money is an old idea, as is the notion of issuing vouchers with an expiration date to make sure the M gets multiplied by some V. In the "beware of what you ask for" category, another way we (at least in the US) might get inflation is that overlevered productive capacity continues to be taken out, the bond market and USD deteriorate, causing import costs (including raw materials) and cost of capital to rise. Think of this as a supply curve shift (higher prices) or money chasing fewer goods and services, depending on how you like to think about inflation. A wage/price spiral could ensue, as the CPI becomes more a function of exogenous factors and less of labor being traded around the economy via services. Seems like a clusterf*ck, but how likely? Any thoughts?

Anonymous said...

Sigh. If the federal government was preparing for inflation, it would not be issuing so many TIPS right now. TIPS are the only way to technically bankrupt the federal US (and ironically this bankruptcy would be triggered via inflation).

Ignoring TIPS for now. The last time I looked 75 percent of debt in the US was held domestically. Only about 5 percent of debt (2 trillion out of 50) is held by the Chinese. It would not be _them_ , but lots of angry voters paying the piper. Might be pulled off with sufficient class warfare.

And even if you could inflate most of the domestic debt away, you would have to make a deal with the Saudis et al such that crude prices do not spike to the moon as an inflation hedge. (This was a problem just half a year ago but apparently it is already forgotten.) What is monetary inflation good for, if still leads do a reduced economic ouput (as in Zimbabwe)?

I think it is not impossible to pull a "good" inflation (or debt restructuring) off, but there are more pitfalls than one might think.

Now, once deflation takes hold, how do you keep screwing the bond holders? Defaults? Cramdowns? Coupon modifications? Wouldn't any of that be deflationary in itself?

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