This is simply awesome. The SF Federal Reserve actually has a game where you can play Ben Bernanke and destroy the American economy in 4 short years. Here is the link:
http://www.frbsf.org/education/activities/chairman/
Just use the current Federal Funds Rate of .25% and see what happens in four years. Zero Hedge’s take is hysterical:
Everywhere you look these days, it seems that ZIRP, or the Fed’s Zero Interest Rate Policy, is the panacea to all the world’s problems. In fact, ask any tenured economy Ph.D. what inflation is and you will get a stare down, be told you are a moron, that banks need to print more, more, more and that we are really roiling in deflation, with some latent mumblings about buying their economics textbook for the inflationary price of $124.95. Everywhere, that is except the Fed itself. Because in an extremely ironic twist, it is none other than the San Francisco Fed, which operates the “Be Fed chairman for a day” simulation, where you try to keep both unemployment and inflation within the “price stabeeleetee” barriers, that reveals the reality of ZIRP. The laughter really begins when one recreates precisely what the Fed is doing: namely the policy of Zero Interest Rates, now well in its third year, that things take a turn for the surreal. We challenge any reader to play the Fed simulation game, and to do what Bernanke has done: namely lock the Fed Funds rate at the legal minimum: between 0.00% and 0.25%. In our personal experience, we were dismissed as Fed Chairman after annual inflation literally went off the charts and hit 38.36% following 4 years of ZIRP. And according to the Fed, inflation would now, 2.5 years into ZIRP, realistically be running at about 17%. Which incidentally is exactly where it is, at least for those who have not mutated sufficiently to be able to metabolize iPads and fly to and from work using their own pair of wings. Of course, every hyperinflation has a silver lining: US unemployment will be just 1.5%. Granted everyone will be making pitchforks and rope, but they would be employed.
Stucky says:
I set the rate at 10% for all 16 quarters.
Inflation was negative 3%. Unemployment was only 12.48%
Shit. Those are numbers that would get Obama re-elected!
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19th November 2011 at 9:49 am
Administrator says:
Bernanke has guaranteed the markets he will keep the rate at .25% at least until 2013.
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19th November 2011 at 9:54 am
Stucky says:
According to the game, that would result in 12.22% inflation, and 1.5% unemployment.
Doesn’t sound right … at least the unemployment part.
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19th November 2011 at 9:59 am
Administrator says:
Stuck
Germany had virtually full employment as they approached hyperinflation in 1923.
There would be an illusory boom with 12.22% inflation. Wages would be soaring. The value of your house would be soaring. Corporate profits would be soaring. The stock market would be 20,000. It seems farfetched, but it happened and it will happen again.
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19th November 2011 at 10:09 am
Administrator says:
Stuck
What the game doesn’t show is the value of the USD plummeting, just as the German Mark plummeted in 1922-23.
With 12% inflation, gold would be $5,000 an ounce.
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19th November 2011 at 10:35 am
Stucky says:
Thanks Jim! Makes sense when you explain it.
Don’t know if you’re a Martin Armstrong fan. One thing he constantly harps upon is the utter insanity of believing that the bankers and government can actually fix anything. Their manipulations invariably makes things worse. The game above seems to confirm that.
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19th November 2011 at 10:45 am
AWD says:
To bad it’s not a game in reality. How can the Fed charge zero interest, yet the government charges students 6-8% interest on student loans, and the banksters charge people 29% interest on credit cards? That’s criminal.
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19th November 2011 at 12:04 pm
howard in nyc says:
thank goodness the transmission of fed cash, through the banking system, into the general economy is broke/flawed/not doing its thing.
so much of that zirp cash went towards 1) covering up bad debt; 2) into the stock market; 3) into the other casino games, like commodity futures, inflating oil, wheat, rice, corn, and, um, gold (thank ben for that last one).
that is why actual inflation, however you decide to measure it, is so much less than anticipated by that game.
or as anticipated by y’all. deflation, bitches.
(jk. i don’t mind conceding the degree to which zirp has actually done what ben wanted, in conjunction with QE2. but $100/barrel oil is quite the bitch, ain’t it ben? or should i say ben is the bitch of the oil price, undeniably inflated by his hand.)
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19th November 2011 at 5:15 pm
Muck About says:
@howard somewhere in ny: The biggest looser of all is thee and I. ZIRP essentially freezes up capital creation because there is no where to deposit savings at an honest return (which is normally 2 1/2 or 3% above the rate of inflation). No capital formation, no real growth and all you have left to throw in the game is funny money stimulus that is sucked up by the Fed’s “special agent” banks and used to speculate with or redeposit with the Fed at small but risk free interest.
The economy simply is starved completely of capital. People and institutions either speculate or keep their money reserves (savings) in cash because there is no penalty to holding cash over capital investment in a ZIRP world. ZIRP is a totally fucked up policy that now has backed every sovereign power (including us) into a corner where ZIRP must be maintained at all costs because if interest rates do rise (as they now are in Greece, Italy and even France) we cannot – short of obvious hyperinflationary money/credit creation – pay the _interest_ on existing debt.
When this becomes glaringly obvious, the End Game is on and all paper currencies go the way of the 1923 Douchmark and vanish in vast greasy clouds. Germany, needless to say, having suffered that once recently, is very resistive to the idea of unlimited paper toilet money – they may become the next country to have a reserve currency when the EU blows up!
MA
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19th November 2011 at 5:38 pm
howard in nyc says:
word, MA.
i am coming to understand how multiple mechanisms become self-reinforcing. liquidity, meet trap. rock, meet hard place.
so much easier to grasp when seeing it play out in real time, than reading a macro textbook or history book.
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19th November 2011 at 5:44 pm
Mike says:
I played this game at the SF Fed in 1994. Apparently nobody learned anything new.
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19th November 2011 at 7:05 am