Who to Believe, Adam Smith or Bernanke & Greenspan? Exposing Bernanke’s Lies During the Testimonies
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During the Congressional testimonies of any Fed Chairman the real telling comments come during the questions and answers season and not in the prepared text for the testimony. It was very true of Bernanke’s recent testimonies.
As you know, the large negative balance of trade that US suffers from is a big concern of many Americans and most lawmakers in the US Congress. This question was repeatedly put to Greenspan during his testimonies and the same was the case during Bernanke’s testimonies yesterday and today. Both have claimed that the negative trade balance is due to the US attracting foreign investment. Today, Bernanke said that the capital is flowing into the US because we are investing more than we are saving, including investing in residential housing.
THE BIGGEST LIE THAT HAS BEEN REPEATED OVER AND OVER AGAIN IN THE US, BY THE REAL ESTATE INDUSTRY, WALL STREET AND FED CHAIRMEN, IS THAT THE HOUSE ONE LIVES IN IS AN INVESTMENT. IT IS NOTHING MORE THAN AN EXPENSE, LIKE ANY OTHER CONSUMPTION PURE AND SIMPLE, AND I HAVE THE UNEQUIVOCAL AUTHORITY OF ADAM SMITH ON THIS.
Rental housing can be claimed as an investment, but the rental vacancy rates have been hovering near 30-year high, so we don’t need foreign capital to invest in rental residential real estate. What has been going on during 2002Q1-2005Q3 is that renters were aggressively pushed into owning their residences even if they didn’t have adequate means to do so. Speculative frenzy and dubious lending were created to accomplish this.
Here is what the real Maestro, Adam Smith, has
to say: Houses produce no revenue! Under the sub-section titled, The Portion
Reserved For Immediate Consumption, the Maestro says: “The first, is that
portion [of capital stock] reserved for immediate consumption, and of which
the characteristic is that it affords no revenue… The whole stock of mere
dwelling-houses too subsisting at any one time in the country, make a part
of this first portion… A dwelling-house, as such, contributes nothing to
the revenue of its inhabitant; and though it is, no doubt, extremely useful
to him, it is as his clothes and furniture are useful to him, which, however,
make a part of his expense, and not of his revenue.” I don’t think that
“It Is Different Now” would apply because “dwelling-houses” serve the same
function in the economy as before.
Adam Smith On Balance Of Trade and Why India & the US Are Marked for Economic DECAY
First, the Maestro cautions against the “pretended doctors of the system’s” claim that “unfavourable balance of trade” leads to ruin. The devil lies in the most important detail – for what purpose the negative balance of trade is used? Under the sub-section titled, Prosperity and Decay Depend On the Balance of Produce and Consumption, Maestro Smith is very clear (all caps are mine for emphasis):
“There is another balance… very different from the balance of trade, and which, according as it happens to be either favourabe or unfavourable, necessarily OCCASIONS THE PROSPEROTY OR DECAY OF EVERY NATION. THIS IS THE BALANCE OF ANNUAL PRODUCE AND CONSUMPTION. If the exchangeable value of the annual produce, as it has already been observed, exceeds that of annual consumption, the capital of the society must annually increase in proportion to this excess… If the exchangeable value of the annual produce, on the contrary, fall short of the annual consumption, the capital [not to be confused with the market value of assets] of the society must annually decay in proportion to this deficiency.”
BTW, if a nation imports production capital, e.g.,
machines to increase production capacity, and runs a trade deficit, it
is not only not bad but good. The US had this kind of “unfavourable balance
of trade” during the late 1800s. Many people don’t know that India has
a trade deficit and it is primarily due to importation of consumption goods
from East Asia. Americans and Indians have a similar disease; they consume
more than they produce. And how is this miracle accomplished? By transferring
the ownership of their assets to East Asians! Adam Smith tells us that
this sort of behavior, consuming more than producing year after year after
year, leads to the economic decay. I hope that I made my case, or Adam
Smith made the case for me.
Bernanke’s Little Lie On the Future of Housing Prices
Congresswoman Julia Carson: “I have one quick question on the housing market. At one point it was skyrocketing, booming, and now it is on the decline. What kind of impact it is going to have on the domestic economic growth.”
Chairman Bernanke (my caps for emphasis): “…The decline in activity [number of sales] will be moderate… [HOUSING] PRICES WILL PROBABLY CONTINUE TO RISE but not at the pace they been rising… Even if housing market cools, it will be consistent with strong economy in 2006 and 2007.”
Seems like Bernanke was reading from the talking points provided by National Association of Realt-whores. Who do you think has a better grasp of what is going on in the most important sector of the US economy, Congresswoman Carson or Chairman Bernanke? Poor woman was telling the truth because not only the activity but also the prices are already declining in most areas and nation-wide since they peaked in August 2005. So, how can Bernanke claim that the prices will “continue to rise” when they are in a decline already?” Second, why can’t he answer how a price decline will impact the GDP as Congresswoman wanted to know? Plain-talker Bernanke?!
Because of the power that they have been given,
to serve the interests of the American People, the lies of Bernanke and
Greenspan particularly disgust me because they are not only not serving
the interests of the American people but, with their premeditated lies,
they serve the interests of the most harmful Crooks in the world today
– Bankers and Financiers of New York City. Anyone who cannot be counted
on to serve the interests of the latter, at the expense of the American
People if that is what is needed, has no chance to be appointed a Fed Governor
and certainly not the Fed Chairman. The system has been Crooked (verb usage).
Disgusted with the Crooks and their liar Agents at the Fed,
PS: I have met highly educated Americans who have
never heard of Adam Smith. And Greenspan confessed that until few months
ago he had not read Adam Smith for more than 50 years.