Let’s hear it for consistency – hip, hip…

Though many things he may be, Willem Buiter is at least consistent. This is not a quality to be sneered at when you are in the employ of the public or have the fate of large numbers of citizens in your hand. If you are consistent, the public can feel a degree of confidence when deciding whether to follow you or not. Consistency is also related to integrity or the ability of someone to take criticism because of an ideal or a different interpretation of available information. Consistency is generally good because it allows others to plan accordingly.

I’ve already referred to Willem Buiter as one of the more strident supporters of fiat money and the preeminence of government when I wrote about currencies and gold in a previous post. Now, obviously uncertain as to whether he’s made himself clear, Mr. Buiter offers what can only be described as his revelation as to what is needed to bring salvation for humanity.


Ben Bernanke, chairman of the Federal Reserve Bank, has a lot more tools for supporting U.S. economic activity through expansionary monetary policy than he discussed in his Jackson Hole speech…“- he tells us confidently thus hinting that he, either personally or through a higher agent, holds the ultimate and exclusive secret for salvation.

Treasury Secretary Tim Geithner can always send a sufficiently large check to each U.S. resident to ensure that household spending rises.”

In normal times (i.e. in times that are not interesting), merely uttering the above should suffice to give pause to anyone with a modicum of real world experience and attachment to reality. But we live in times that are interesting (much to the delight of our Chinese friends as our governments would have you believe … but that’s another story) so that a publication like the Wall Street Journal feels it is fit to give Mr. Buiter space on its venerable pages.

But, it gets better:

As long as households are confident that these transfers will not be reversed later, “helicopter money drops” will, if pushed far enough, always boost consumption.”

And there you have it! All that is required to achieve permanent prosperity is for government to give a salary to every man, woman and child in the land and presto!! We can look forward to a life of fun and fulfillment with no need to ever bother to produce anything.

Seven thousand years of human history and development and Mr. Buiter is the only human to ever walk the earth that has the solution to contentment and prosperity.

Looks like we now can all sit back and relax tranquil in the knowledge that our travails are over. All we need is a good printing machine and a handful of volunteers to punch the required keys so that we can all be prosperous and rich. I wonder if the people hired to punch the keys like Tim Gaithner must be relieved of their duties on occasion so that they too may enjoy some rest and relaxation from the dreary and repetitive stress of punching keys… things that make you go hmmm!

Sarcasm aside. What Mr. Buiter proposes is nothing but more of the same. Just neutron-bomb more.

OK! To be fair, Mr. Buiter does go on to say that this should only be a “cyclical” remedy but that what is needed is: “… to raise the national saving rate, boost fixed investment in plant, equipment and infrastructure, achieve a trade surplus and shift resources from the non-tradable to the tradable sectors.

But exactly because the above paragraph makes arithmetical sense, I cannot reconcile it with what Buiter suggests just moments before it. Not in light of where we have been. As a reminder, without linking to any of the hundreds previous posts on this and other blogs, we have a history of government, commercial and private debt that, even if we only count the past 40 years, has progressed in the double digits yearly. This means that since 1980 for example, all manners of debt has progressed well in excess of 1000%. In the meantime, GDP only progressed by 100% – i.e. whereas we’ve experienced a ten fold increase in debt, GDP has barely doubled.

But what we did get is the almost total obliteration of our currencies –


Now, that may not look too bad if you are a European or a Japanese for example. What do you care about the destruction of the US Dollar right!? But let me tell you. Globally, our modern monetary system is based on what is known as “Floating Exchange Rates”. This is nothing but a fancy name that means that the value a currency is based on is related to the value of all other currencies. But since the US$ is the currency of reference, de facto all currency values around the world are based on the value of the US Dollar.

In any other field of human endeavor, “Floating Exchage Rates” would qualify as circular reasoning.

But circular reasoning is not the only fallacy afflicting our monetary system. We must also contend with “experts” that have no ability or desire to observe reality empirically. To wit:

To restore monetary policy effectiveness in a low interest rate environment when confronted with deflationary or contractionary shocks, it is necessary to get rid of the zlb [zero lower bound] completely. This can be done in three ways: abolishing currency, taxing currency and ending the fixed exchange rate between currency and bank reserves with the Fed.”

Setting aside for a moment the arcane explanations Mr. Buiter launches in, all I can say is that he would do well to go have a chat with people in Argentina or Zimbabwe just to mention two very recent examples of strategies based on devaluation. But, of course, Mr. Buiter will retort that the same rules do not apply to the reserve currency of the world. To which claim I can only refer Mr. Buiter to the graph above.


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One Response to “Let’s hear it for consistency – hip, hip…”

  1. David Wozney Says:

    If the stated value, of “Federal” Reserve notes, declines enough with respect to copper and nickel, the 1946-2010 U.S. Mint nickels, composed of cupronickel alloy, could become somewhat rare in mass circulation.

    The September 13th metal value of these nickels is “$0.0574114” or 114.82% of face value, according to the “United States Circulating Coinage Intrinsic Value Table” available at Coinflation.com.

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