Monday, December 06, 2010

What Is Ben Bernanke Investing In?

Last night, Fed chairman Bernanke went on 60 Minutes and had this to say:
Federal Reserve Chairman Ben S. Bernanke said the economy is barely expanding at a sustainable pace and that it’s possible the Fed may expand bond purchases beyond the $600 billion announced last month to spur growth.

“We’re not very far from the level where the economy is not self-sustaining,” Bernanke said in an interview broadcast yesterday by CBS Corp.’s “60 Minutes” program. “It’s very close to the border. It takes about 2.5 percent growth just to keep unemployment stable and that’s about what we’re getting.”
When I buy shares or corporate bonds of Archer Daniels Midland (ADM), I'm investing in a company that supports all phases of American agriculture. I invest in them because I think they're going to grow by creating more of what people want and need and will pay for. Implicitly, I'm saying that ADM will create economic growth. ADM does so because their managers want to make a higher profit. When they make more profit, they can expand and hire more people to make still more profit.

When Ben invests his $600B in Federal debt, he's investing in an organization that is not motivated to produce profit or build things that people want and need and are willing to pay for. Why does he think this is going to lead to growth?

In simpler terms, if you wanted economic growth, would you put money into the hands of Congress and the President or would you put it in the hands of ADM?


If you don't like ADM, how about DOW? Watch this Kiwi commercial and ask yourself how that $600B given to the government will lead to more growth than this.

7 comments:

Jedi Knight Ivyan said...

And they can't even print money correctly. Did you see this news story about 1.1 billion $100 bills that have been misprinted? It's going to take at least a year to sort out the good bills from the bad ones.

http://www.cnbc.com/id/40521684

K T Cat said...

Here at the 'Post, we're standing by to help them sort out those bills.

Secular Apostate said...

What a disgusting, racist, chemicalist comercial.

Every single one of teh faceless drones (how appropraiate!!!) in the comercial WAS WHITE!!!

And they're spreading toxic chemicals that give horrifying cancers and rotting bodies to tiny innocent children who shoud never have been born in teh first place all over the planet and stuff.

Disgusting. You should be silenced.

GO VEGAN!!!!!!!!!!!!!!!!!

Musgrave said...

In your previous post you say you invest in a firm like ADM because “I think they're going to grow by creating more of what people want and need and will pay for.” What if “people” (and firms) are saving as never before (i.e. deleveraging or hoarding cash)? And this is what they are currently doing. In this case they are ipso facto not spending, even if firms DO produce “more of what people want”. Put another way, ADM just won’t grow unless households are given more of the stuff needed to buy ADM produce, that is to say, money. And quantitavely easing $600bn puts more money into private sector hands: not that QE is an efficient way of doing this. It has been likened to pushing on a bit of string.

“When Ben invests his $600B in Federal debt, he's investing in an organization that is not motivated to produce profit or build things that people want and need and are willing to pay for. Why does he think this is going to lead to growth?”

That is not a brilliant criticism because it’s a criticism that applies to the ENTIRE public sector. E.g. the public sector is almost by definition a collection of activities that voters think are required (e.g. law enforcement, schools, roads, the military etc) but which the free market left to its own will not provide, or provide in adequate volumes.

scoremore said...

I find it interesting that Big Ben would make the education comment. First of all, College 2009 and 2010 graduates can’t find work and with unemployment set to remain steady, the 2011 graduates will only make this number increase.

Scoremore said...

Fourth branch of government, what does it mean? I cannot see what’s gonna be its effect to our economy. It is positive or more on the negative side?

K T Cat said...

Musgrave, thanks for the comment. Since this is a balance sheet recession (debt-induced), helping the government incur more debt is not a good answer. A better answer was probably what TARP did in the first place - suck up the bad debt from the private banking system in an effort to let them loan again.

I would also argue that interest rates are not the big problem here, it's regulations. All the while Ben isw lowering interest rates by 0.25%, the government is passing mammoth new laws which will create regulations 10x the size of the laws. Who's going to expand in that environment?