[yetanotherphd]

Nice clear thinking from Buffet. The ideas are very old, only the implementation is new.

First, the Fed's actions are a mix of fiscal and monetary stimulus. They are not different to Keynes' idea of fiscal stimulus, since they inject money into the economy in cases where even zero interest rates couldn't.

Second, in order for stimulus to work, it must convince people to make long term decisions (such as building physical factories, starting companies, buying durable goods, etc.) and therefore the Fed must commit to a long term stimulus plan. Buffet clearly outlines the Fed's approach to making this commitment.

I know a lot of people on HN are deeply suspicious of mainstream macroeconomics, and that is understandable since even with my training I can't really verify that people in the field are doing things right. However, I will say that there are a large number of countries in the world that are big enough to have their independent macroeconomic policy. So far, no country I'm aware of has chosen not to use the above two principles, which together can be taken as a summary of neo-Keynsian economics. If there really some better way out there I think that some country would have tried it.

[patrickg_zill]

Why do I get the feeling that the "green" in the accounts on this sub-thread, smell like "astroturf"? We get a guy who claims he is an econ PHD (no email, no proof of that).

Obviously you haven't read Keynes, or you have at least referenced his warning:

^^^ Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. ^^^

(I add: the one man in a million including, apparently, people with PHDs)

[preempalver]

Where is the hyperinflation? Data please

[patrickg_zill]

http://www.shadowstats.com/alternate_data

Hyperinflation - not here yet. Inflation - much more than officially stated.

[yetanotherphd]

>Why do I get the feeling that the "green" in the accounts on this sub-thread, smell like "astroturf"?

Because you are intellectually lazy, and prefer to question people's motives than to engage with the substantive points they make.

>We get a guy who claims he is an econ PHD (no email, no proof of that).

I never claimed to have a PhD (try parsing my username differently), and I have no intention of releasing any private information.

>Obviously you haven't read Keynes, or you have at least referenced his warning: [warning]

Your patronizing tone is unhelpful and completely unjustified. Neo-Keynesianism is the dominant school of thought in academic macroeconomics. It refers to the synthesis of some of the ideas of Keynes with microeconomic theory. Not everything that Keynes ever said is relevant to neo-Keynesianism, and his original works are not usually studied by graduate students in economics.

On the warning itself, he is referring to something very different from the practices of today's reserve banks. Inflation has been below 4.1% for the last 10 years, while he describes a situation where the "real value of the currency fluctuates wildly from month to month". While his warning is not relevant to the current situation, his argument is entirely correct.

That said (and this is not really what Keyne's point was), even steady inflation, adjusted according to economics conditions, does redistribute wealth. Traditionally the fed used open market operations to change interest rates, and I believe that because these are done through the market, economists have assumed the re-distributional effects are not important. The current actions of the Fed are different, since they clearly benefit certain groups, such as the people issuing the bonds that the Fed buys, possibly including Buffet or even myself. But for this very reason, Buffet, the Fed, and almost all economists want this phase to be over as soon as possible.

[abbazabba]

You also have to consider the weight each country carries in a global economy.

Everyone is tied to everyone else, and so there are bigger players and smaller players. If you are a country with an economy that does not do business with other countries (eg you do not import nor do you export), then you probably have more macroeconomic independence.

So if China or Japan try to move independently, they can't, because in order to buy or sell goods to other countries, they have to buy and sell those other countries' currencies. And the business of buying or selling currencies is tied to macroeconomic policy.

[yetanotherphd]

I was implying that when I said "countries in the world that are big enough to have their independent macroeconomic policy", but that was somewhat glossing over the issues you've raised.

I'm not a macro expert, but my understanding is that a country need not be completely autonomous in order to have its own macro policy. Goods cannot flow perfectly between countries, and so macro policy will always have some effect.

The more a country imports and exports, and the smaller the country, the less impact its macro policy will have.

So the reserve bank of China can influence Chinese interest rates and hence have an impact on the Chinese economy. On the other hand the reserve bank of a "small open economy" cannot do much to change interest rates.