Spot the error

[MMMark]

Fri. 10/04/23 17:21
.post #62

On page 106 of Ron Paul’s End The Fed, from the chapter entitled Conversations With Bernanke, appears this passage:

Ron Paul:
So my question boils down to this. How in the world can we expect to solve the problems of inflation, that is, the increase in the supply of money, with more inflation?

Ben Bernanke:
Well, Congressman, first, just a small technical point. On the growth in money, money growth has been pretty moderate over the last few years. The increase in MZM is probably related to the financial turmoil. People have been taking their savings out of, you know, risky assets, putting them into the bank, and that makes the money data show faster growth.

Something bothered me about Bernanke’s answer, but at first, I didn’t realize what it was.

Anybody else spot it?

[DrSammyD]

Moving money from one place to another doesn’t create inflation?

[DanielMuffinburg]

I don’t see it.

[E_R_Olovetto]

I think he’s saying that it is “moving money out of risky investments and putting the money into banks”, because banks aren’t safe investments.

I don’t know how I feel about that but you guys do know that the FDIC has begun to demand 3 years pre-payment on insurance premiums right? They in no way have enough cash on hand to cover a systemic failure, and it is the fiat-feds in charge anyhow.

[Lewis_S]

Is it his reference to MZM as an inflationary indicator? MZM doesn’t include Federal Reserve credit which is a significant source of the monetary base…? Therefore, he is minimalizing the actual level of inflation.

I really don’t know…just a guess.

[DanielMuffinburg]

Anyone know the date of that quote?

[MMMark]

Fri. 10/04/23 18:31 EDT
.post #63

[url=Spot the error - #4 by E_R_Olovetto]

@E. R. Olovetto

[/url]I think he’s saying that it is “moving money out of risky investments and putting the money into banks”, because banks aren’t safe investments.

haha! That’s not it, but it’s a good point. I totally missed that.

No, Bernanke’s error is much more blatant.

Sam Armstrong is “on the right track.”

[url=Spot the error - #5 by Lewis_S]

@Lewis S.

[/url]Is it his reference to MZM as an inflationary indicator?

Nope; much simpler and more blatant than that.[url=Spot the error - #6 by DanielMuffinburg]

@Daniel Muffinburg

[/url]Anyone know the date of that quote?

November 8, 2007, according to page 104, and no cheating with Google. Try to figure it out.

[Caley_McKibbin]

The FDIC generally holds about 1% of deposits.

[polskash]

Is it that merely moving money from an asset to a bank account causes inflation which would not occur in the absence of fractional-reserve banking?

[Smiling_Dave]

“money growth has been pretty moderate over the last few years.”

just a guess, was the fed printing money wildly before he said that?

[DrSammyD]

So when you take your savings out of a risky asset and put it in a bank, somebody gives you the money for that asset. The economy on net doesn’t gain any money supply. The money had to come from somewhere so (assuming the Fed didn’t pay you for your asset) somebody used already existing money to exchange for your risky asset. Therefore the money data wouldn’t grow because I sold a risky asset and put that money in the bank. Is that about right?

[MMMark]

Sat. 10/04/24 10:10 EDT
.post #65

[url=Spot the error - #9 by polskash]

@polskash

[/url]Is it that merely moving money from an asset to a bank account causes inflation which would not occur in the absence of fractional-reserve banking?

Nope.[url=Spot the error - #10 by Smiling_Dave]

@Smiling Dave

[/url]just a guess, was the fed printing money wildly before he said that?

Yeah, I don’t buy Bernanke’s description of money growth as “pretty moderate” either…but that’s not the error.[url=Spot the error - #11 by DrSammyD]

@Sam Armstrong

[/url]So when you take your savings out of a risky asset and put it in a bank, somebody gives you the money for that asset. The economy on net doesn’t gain any money supply. The money had to come from somewhere so (assuming the Fed didn’t pay you for your asset) somebody used already existing money to exchange for your risky asset. Therefore the money data wouldn’t grow because I sold a risky asset and put that money in the bank. Is that about right?

Bingo!

This blogger also spotted Bernanke’s bullshit.

@EScroogeJr

A risky asset is not a mattress that you can take your savings out of. In order for you to generate some sales proceeds to put in the bank, you must find a buyer for your asset, and that buyer has to take the same amount of money out the bank, either in the form of cash, or as credit. … It follows that the buyers of those securities had to remove cash from the bank at least at the same rate as the rate at which sellers were deposing their cash proceeds. So these transactions, which actually indicate nothing more profound than changes of ownership, cannot explain the growth of MZM. The reality is that one 2008 dollar is worth 80 cents of 2007 money because of overproduction of dollars by Bernanke & Co.

[Smiling_Dave]

I really enjoyed this whole thread. I would love more of the same, riddles of this sort.

The answer is obvious [after the fact] and enlightening.

Thx!

Oh, one lil thing. Say the asset was paid for in cash that was not in a bank, but under a matress or anywhere but a bank. So the magic of fractional reserve banking doesn’t apply to it. But once it’s put into a bank, Fractional reserve banking blows it up into ten times as much. Isn’t that a partial justification for Bernanke’s statement?

[DanielMuffinburg]

Haha… I thought it was something work with the books pubishing. For example, a misspelled word or something.

[MMMark]

Sat. 10/04/24 13:45 EDT
.post #70

[url=Spot the error - #13 by Smiling_Dave]

@Smiling Dave

[/url]Isn’t that a partial justification for Bernanke’s statement?

I guess, in this case, Bernanke’s statement is justified, although I think it’s quite clear he was talking about the more common scenario.

Several points, however, regarding transferring money from mattress to bank account:

1. The re-entry of the mattress money, prior to being multiplied by the fractional reserve system, is not inflation, since no new money has been created “out of thin air.”

2. The increase in MZM, even after accounting for the multiplier effect, only offsets the same DECREASE that occurred when the money originally went IN to the mattress.

Another point:

Notice how Bernanke, through the use of a metaphor (“taking money out of risky assets”) commits a “lie of omission”: He focuses on only one side of the transaction, while ignoring the other. This is the error Henry Hazlitt warned about in Economics In One Lesson.

@Smiling Dave

I would love more of the same, riddles of this sort.

Here’s another, easier one, from page 107:

Ron Paul: But how can you pursue this policy without addressing the subject that somebody’s losing their wealth because of a weaker dollar?

Ben Bernanke: If somebody has their wealth in dollars and they’re going to buy consumer goods in dollars - it’s a typical American - then the decline in the dollar, the only effect it has on their buying powers, it makes imported goods more expensive.

[url=Spot the error - #14 by DanielMuffinburg]

@Daniel Muffinburg

[/url]Haha… I thought it was something work with the books pubishing. For example, a misspelled word or something.

haha! Well, that’s partially my fault. I should have titled the thread “Spot the fallacy.”

[Smiling_Dave]

Ben Bernanke: If somebody has their wealth in dollars and they’re going to buy consumer goods in dollars - it’s a typical American - then the decline in the dollar, the only effect it has on their buying powers, it makes imported goods more expensive.

I see two flaws.

1. Imported goods are a HUGE amount of what Americans buy.

2. The way the dollar is devalued is not by some decree. After all the dollar and all currencies are subject to supply and demand like everything else. The dollar is devalued by printing more of it. [Jonathan Catalan’s latest post in Mises’ Daily taught me this].

So that devaluing the dollar= printing more dollars= inflation= price of EVERYTHING goes up.

[MMMark]

Sat. 10/04/24 17:01 EDT
.post #72

[url=Spot the error - #16 by Smiling_Dave]

@Smiling Dave

[/url]I see two flaws.

Both good points, but neither is the fallacy that I noticed.

Hint: You said: price of EVERYTHING goes up.

Now re-read Bernanke’s statement.

[Smiling_Dave]

I give up. Unless you meant that bernanke said only imports go up, when inreality everything goes up. But that’s my point 2 in the earlier thread.

It occurs to me that the “top ten economic fallacies” thread is a good riddle source. What is the rebuttal to those top ten fallacies. Work lies ahead for the energetic.

[MMMark]

Sun. 10/04/25 11:56 EDT
.post #74

[url=Spot the error - #18 by Smiling_Dave]

@Smiling Dave

[/url]Unless you meant that bernanke said only imports go up, when inreality everything goes up. But that’s my point 2 in the earlier thread.

Argh! I apologize. You nailed it.

Bernanke suggests that the dollar’s declining value is only in terms of foreign currencies, without affecting domestic purchasing power. He tells this lie to avoid admitting the secret, unpleasant truth: that inflation steals wealth from those who earn it and transfers it to the Fed and government. The Fed can lend without limit, while the government can spend without limit. The slaves get to pay the price.

[MMMark]

Wed. 10/04/28 09:01 EDT
.post #87

Here’s a video (8:17) I became aware of in another thread. Produced by/for the European Central Bank, it ostensibly teaches about “price stability” while covertly slipping in some pernicious, fallacious propaganda. The video:

Price stability: why is it important for you?

From the ECB website:

@ECB

Teaching economics to young teenagers? Then this kit about price stability might help. It consists of an 8-minute cartoon, a pupil’s leaflet, which explains price stability in simple terms, and a more detailed teacher’s booklet. The kit has been produced by the ECB together with the national central banks of the euro area.

Spot the fallacies, hidden assumptions, lies of omission, inconsistencies, etc. The idea is to perform a “differential diagnosis,” Austrian-style, i.e., to show how an Austrian evaluation explains what the official version fails to.

Note: I haven’t read the “more detailed teacher’s booklet,” but it could prove to be a gold mine of nonsense and hoodwinkery..

Happy deconstructing!