Do you believe in reincarnation?
Herbert Hoover began his career as a gold mining engineer:
Hoover went to Australia in 1897 as an employee of Bewick, Moreing & Co., a London-based mining company. Hoover first went to Coolgardie, then the center of the Western Australian goldfields, where he worked under Edward Hooper, a company partner. Conditions were harsh as these goldfields were centered in the Great Victoria Desert and Hoover described the region as a land of “black flies, red dust, and white heat.”[5] He served as a geologist and mining engineer while searching the Western Australian goldfields for investments.
He became wealthy, entered politics, and took office in March 1929. He supported the Fed’s tight money policy during the early stages of the Great Depression. This despite the fact that the policy led to a gold inflow to the US which greatly weakened economies on the “periphery” of the gold standard.
In contrast, Jean-Claude Trichet started his career as a coal mining engineer.
Jean-Claude Trichet grew up in a family that was greatly influenced by a love of mathematics and poetry, thanks to the efforts of his university professor father, Jean. His father’s influence led the younger Trichet to study math, economics and mining engineering. He gained relevant experience through a job at a coal mine and familiarized himself with politics by actively working with the Socialist Party.
He went on to head the European Central Bank. He supported tight money policies that caused the biggest crash in European NGDP since the Great Depression. Policies that led to a flow of money from the periphery of the eurozone to the core countries.
The Trichet bio also provides one of his quotations:
Poems, like gold coins, are meant to last. They are both aspiring to inalterability, whilst they are destined to circulate from hand to hand and from mind to mind.
PS. Primo; don’t take this personally.
PPS. Yes, I know that Hoover died after Trichet was born.
HT: Mark Sadowski, who provided the tip about Trichet.
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25. March 2012 at 06:52
1. Trichet promissed to print an unlimited amount of dollars on October 15 2008 – Bernanke has never done that. This has saved the US from the Great Depression by making it impossible for the the American NGDP to fall faster than the European NGDP.
2. Trichet has managed NGDP expectations much better than Bernanke did – this has resulted in better labour market outcomes for the Eurozone vs. US in 2008-2009.
3. He has crucified Greece on the cross of Eurozone-wide price level target.
4. Even though he has hit the price level target impeccably over his tenure, money was too easy in 2006-2007
Summary – Trichet was a Maestro of monetary policy who was constrained by the inflation targeting regime and made a costly mistake in 2006 by succumbing to a political pressure. Godwin’s law is preventing me to complete me the analogy “Trichet is to Hoover as Bernanke is to _____ “
25. March 2012 at 08:36
123, Sorry, you completely lost me. Starting with the ECB printing “dollars” and then your argument that they “managed NGDP expectations.” Didn’t NGDP fall even more sharply in Europe, and recover more slowly?
25. March 2012 at 09:16
Scott,
Here is the key part of the ECB’s Oct 15 announcement.
“As from 21 October 2008, and at least until the end of January 2009, in parallel with the existing tenders in which the Eurosystem offers US dollar liquidity against ECB-eligible collateral, the Eurosystem will also offer US dollar liquidity through EUR/USD foreign exchange swaps. The EUR/USD foreign exchange swap tenders will be carried out at a fixed price (i.e. swap point) with full allotment.”
This was very powerful and it caused the depreciation of USD. The promise by the Federal Reserve Bank of Frankfurt to print unlimited amount of dollars was completely credible, even though the ECB is not formally a member of Federal Reserve System.
“and then your argument that they “managed NGDP expectations.” Didn’t NGDP fall even more sharply in Europe, and recover more slowly?”
Labour markets are forward looking. Ex-post NGDP is irrelevant, only NGDP expectations matter. Take a look at the slides 5 and 6 from the presentation by Trichet:
http://www.ecb.int/press/key/date/2011/html/sp110613.pdf
Trichet always likes to point out how much more he was successful in stabilizing inflation expectations than Bernanke was. And it really helped the economy.
25. March 2012 at 09:17
sorry, slides 6 and 7
25. March 2012 at 13:34
This reminds me of Keynes’ attacks on gold in the 1930s.
Keynes urged FDR to confiscate all gold held by American citizens. He called gold a “barbarous relic.” Yet, when he frequently visited FDR, he urged FDR to prop up the price of gold, after it was made illegal for citizens to own. Keynes wrote a letter to FDR, urging FDR to stabilize the “drunken” price changes in gold. Meanwhile, Keynes went long on gold stocks. Beginning in 1933, FDR would meet with advisers everyday and set an artificial gold “price”, increasing the price of gold while every other commodity was collapsing. In 1934, the Gold Reserve Act fixed the price of gold at $35 an ounce, 2/3 above the pre-1933 price. Keynes made huge profits.
25. March 2012 at 20:53
A few kind words about Hoover, who saved millions of lives in Europe after (and during) WWI, and who was quite a world hero in his time — until the Fed sandbagged him:
~~~~
“He is certainly a wonder and I wish we could make him President. There couldn’t be a better one.”
— Franklin D. Roosevelt on Herbert Hoover, 1920
“Mr Hoover was the only man who emerged from the ordeal of Paris with an enhanced reputation.
“This complex personality with his habitual air of a weary Titan, his eyes starely fixed on the true and essential facts of the European situation, imported into the councils of Paris, when he took part in them, precisely that atmosphere of reality, knowledge, magnanimity and disinterestedness which, if they had been found in other quarters also, would have given us the good peace….
“Europe … should never forget the extraordinary assistance afforded her during the first six months of 1919 through the agency of Mr Hoover and the American commission of relief. Never was a nobler work of disinterested goodwill carried through with more tenacity and sincerity and skill, and with less thanks either asked or given.
“The ungrateful governments of Europe owe much more to the statesmanship and insight of Mr Hoover and his band of American workers than they have yet appreciated or will ever acknowledge.
“The American relief commission, and they only, saw the European position during those months in its true perspective and felt towards it as men should. It was their efforts, their energy, and the American resources placed by the President at their disposal, often acting in the teeth of European obstruction, which not only saved an immense amount of human suffering, but averted a widespread breakdown of the European system.”
— Keynes on Hoover, 1919
27. March 2012 at 05:32
123, By how much did the Germans increase the US monetary base?
I’m not impressed by the inflation data, as inflation is a meaningless indicator. I see no reason to assume that NGDP expectations fell less in Europe than the US, I believe actual NGDP fell further and recovered more slowly. Employment depends on actual NGDP, and other factors like job sharing.
Europe has disguised unemployment, people keep working but do less. That may be good from a welfare perspective, but it’s still a business cycle.
I don’t think you’d find many people in Europe who believe Trichet left the eurozone economy in better shape than the US economy.
MF, Your comment makes no sense. If Keynes was selfishly calling for higher gold prices in early 1933, why would he call for FDR to stop late in the year? He did switch, as you said, but that just proves he wasn’t being selfish.
Jim Glass, Yes, I’ve argued that Hoover was the greatest man to ever serve as President. The man who did the most good before being president. But . . .
27. March 2012 at 06:38
ssumner:
If Keynes was selfishly calling for higher gold prices in early 1933, why would he call for FDR to stop late in the year?
Where are you getting that Keynes called for FDR to stop increasing the price of gold in late 1933? As far as I can tell, what he actually said was just that he thought it was foolish for FDR to believe that currency depreciation could boost prices, and that only government spending can do it. That is separate from calling on FDR to stop increasing the dollar price of gold. Price fixing gold is a currency devaluation signal program, not an actual currency devaluation program.
If Keynes really did call upon FDR to stop increasing the price of gold, which I can’t see any evidence to support, then maybe it was because he was thinking about getting out of gold stocks as he sensed a shift in market sentiment that held more and more that price fixing gold upwards was fake and not real devaluation.
27. March 2012 at 09:13
“By how much did the Germans increase the US monetary base?”
ECB monetary base denominated in dollars has peaked in December 2008 when it reached 293 billions. The amount was less important than the fact that the ECB offered to supply an unlimited amount of dollars against a wide range of eligible Eurozone collateral. This way the dollar monetary conditions were loosened and brought into equilibrium with euro monetary conditions. This was one of the reasons why NGDP in the US did not drop more than the Eurozone NGDP.
The crisis timeline also shows that Trichet was the best. On 8 October 2008 main central banks announced a synchronized interest rate cut. It was Trichet who went an extra mile and on the same day made an additional announcement to supply an unlimited amount of euros.
On 13 October 2008 Fed, ECB, BoE and SB announced swap lines, so two days later ECB started offering an unlimited amount of dollars in addition to euro offers.
“I’m not impressed by the inflation data, as inflation is a meaningless indicator. I see no reason to assume that NGDP expectations fell less in Europe than the US, I believe actual NGDP fell further and recovered more slowly.”
Inflation data may be meaningless, but TIPS spreads are extremely useful. It was Bernanke who allowed TIPS spreads to collapse while Trichet fought to stabilize them. As markets believed US had more structural problems at the time, it is impossible to argue that RGDP expectations were better in the US at the time. So Trichet has managed NGDP expectations much better than Bernanke did, even though his goal was to manage inflation expectations. What basically happened was that markets thought that the probability of the Great Depression was much higher in the US than in the Europe. As the Great Depression scenario did not materialize, ex post NGDP was similiar in the US and Eurozone.
“Employment depends on actual NGDP, and other factors like job sharing.
Europe has disguised unemployment, people keep working but do less. That may be good from a welfare perspective, but it’s still a business cycle.”
Temp employment
27. March 2012 at 09:24
“By how much did the Germans increase the US monetary base?”
ECB monetary base denominated in dollars has peaked in December 2008 when it reached 293 billions. The amount was less important than the fact that the ECB offered to supply an unlimited amount of dollars against a wide range of eligible Eurozone collateral. This way the dollar monetary conditions were loosened and brought into equilibrium with euro monetary conditions. This was one of the reasons why NGDP in the US did not drop more than the Eurozone NGDP.
The crisis timeline also shows that Trichet was the best. On 8 October 2008 main central banks announced a synchronized interest rate cut. It was Trichet who went an extra mile and on the same day made an additional announcement to supply an unlimited amount of euros.
On 13 October 2008 Fed, ECB, BoE and SB announced swap lines, so two days later ECB started offering an unlimited amount of dollars in addition to euro offers.
“I’m not impressed by the inflation data, as inflation is a meaningless indicator. I see no reason to assume that NGDP expectations fell less in Europe than the US, I believe actual NGDP fell further and recovered more slowly.”
Inflation data may be meaningless, but TIPS spreads are extremely useful. It was Bernanke who allowed TIPS spreads to collapse while Trichet fought to stabilize them. As markets believed US had more structural problems at the time, it is impossible to argue that RGDP expectations were better in the US at the time. So Trichet has managed NGDP expectations much better than Bernanke did, even though his goal was to manage inflation expectations. What basically happened was that markets thought that the probability of the Great Depression was much higher in the US than in the Europe. As the Great Depression scenario did not materialize, ex post NGDP was similiar in the US and Eurozone.
“Employment depends on actual NGDP, and other factors like job sharing.
Europe has disguised unemployment, people keep working but do less. That may be good from a welfare perspective, but it’s still a business cycle.”
Temp employment and hours worked depend on the actual NGDP. Permanent employment depends on the expected NGDP. Structural job sharing is a bad thing, but temporary job sharing is a very good thing, it happened in Japan after Fukushima, it also happened in the Eurozone as Trichet repeated it is paramount to anchor medium term inflation expectations.
“I don’t think you’d find many people in Europe who believe Trichet left the eurozone economy in better shape than the US economy.”
Just compare how Trichet and Draghi have handled the default of a systemically important country (Greece) to how Bernanke has botched the Lehman. The only advantage of Bernanke is that he has recently moved closer to NGDP targeting, while the ECB remains stuck with the inflation targeting.
27. March 2012 at 09:25
sorry, accidentally posted the unfinished comment first
2. April 2012 at 18:44
123, I’m afraid lots of that went over my head.
1. I have no idea what the ECB dollar monetary base even means. Is this US currency in Europe? Dollar reserves in European banks?
And I don’t see how NGDP did better in either the short run or the long run in Europe. Given that fact, I’ve very dubious of the proposition that NGDP expectations did better, although I can’t say it’s an impossibility.