Monday, August 13, 2007

The Perils of Helicopter Ben

"Federal Reserve Chairman Ben Bernanke first achieved fame with a November 2002 speech in which he repeated Milton Friedman's assertion that the Fed could 'drop money out of helicopters' if deflation or a credit crunch occurred. The Fed and the [ECB] now appear to be doing this, having injected $300 billion into the world monetary system in the last two business days. ... The increased volatility is the key to the entire market turbulence, because of what can only be described as a gross misuse of mathematics in the trading rooms of the world. ... The occassions on which the models didn't work were dismissed as market anomalies, although in reality it was the models not the markets that were anomalous. ... Contrary to populist theory, it is fiat money ... that is the true instrument of Wall Street". Martin Hutchinson,, 12 August.

Thomas Jefferson and Andrew Jackson opposed a central bank. Consider: who does the Fed really work for? The mathematical models were all jokes. Unlike physical objects, markets don't have stable frequency distributions of returns. Buy gold!

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