A Thoughtful Response

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Early on Friday morning, I did a stamp-my-little-feet post about how the government really has done nothing to help me, and on Friday afternoon, a long-time Sloper wrote me a thought-provoking email; here it is in its entirety (which I have reprinted with his permission), leaving out only his name at the end:

I have been following your blog since 2009 and I have to admit that the contrarian tone of your blog has helped me to score quite a few profitable trades. However in the recent past, it seems that the blog (articles as well as comments) is fomenting a lot of anti-government sentiment.

I understand that the sentiment among your followers is primarily stemming from the relentless rise in stock prices due to the interventionist policy of the central banks across the world. I had hoped that amid all the mindless bashing of the government and the feds (especially Ben Bernanke), you might step in and make your followers understand the rationale behind the policies. That real GDP is calculated by the formula

real GDP = C + I + G + Xn

where C = consumption

             I = investments

            G= goverment spending

            Xn = net exports

The financial collapse of 2007-2008 led to a severe reduction in real GDP and Bernanke (being a student of great depression and proponent of Keynesian economics) decided to increase the G component in the above equation which in turn would increase the other variables in the equation due to multiplier effect thus bringing the economy to potential output and restore long run equilibriums. Even the devaluation of dollar has been done in order to increase Xn component in the above equation.

One might argue that Bernanke could have opted for Adam Smith's "invisible hand" policy and let the economy fix itself. That would have worked as well but it would have been a excruciatingly painful process where the economy might have encountered an unemployment rate > 25% (just like great depression) before achieving equilibriums in the long run charts.

In Slope I did not find a single article or comment  which can be considered constructive criticism of the Fed's policies. Now the Fed bashing is being accompanied by anti government rhetoric (your article). Please ask  yourself how would you have fared if you did not have roads ( state highways/ interstates) ? How would you have fared if there was no military protecting our country from forces hell bent on destroying the american way of life? How would you have fared if your town was ruled by gun toting warlords?

Enough of ranting… I know you are a smart chap and I hope that you will be able to get over your frustrations and work towards creating an environment in your blog that promotes
objective thinking.

Good Luck and God Bless

I still am inclined to stamp my little feet, but I think the above information is an erudite expression of the other side of the coin. Thank you!

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