What began as a routine report before the Senate Finance Committee Tuesday ended with [Federal Reserve chairman Ben] Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world’s largest economy.
“Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…” said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. “You know what? It doesn’t matter. None of this—this so-called ‘money’—really matters at all.”
“It’s just an illusion,” a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. “Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless.”
According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, “Oh my God, he’s right. It’s all a mirage. All of it—the money, our whole economy—it’s all a lie!”
Posts Tagged ‘Bernanke’
Tags: Bernanke, Economist, Federal Reserve, humor, money
Tags: banks, Bernanke, cartoon, Cyprus, money, productivity, profits, stock market, Wall Street
Tags: 1929, 2007, Bernanke, Federal Reserve, Great Depression, Second Great Depression, United States
We now know, thanks to the release of the minutes of the 7 August 2007 meeting of the Federal Open Market Committee, that those in attendance were acting like ostriches: foolishly ignoring the mounting economic problems, while hoping they would magically vanish.
Here, for example, is William Poole, president of the Federal Reserve Bank of St. Louis:
My own bet is that the financial market upset is not going to change fundamentally what’s going on in the real economy. First of all, bank capital is not impaired. So unlike in some past cases, when losses on real estate impaired bank capital and thus affected the lending in areas that had nothing to do with real estate, I don’t think that’s the case this time. Second, the fact that some LBO deals fall through isn’t going to change what those companies are producing. The fact that the ownership hasn’t changed doesn’t change the company’s profit-maximizing level of production in the short run. Obviously, that could change, but it seems to me that the best information that we now have is that this financial market upset is going to settle out and not have major repercussions on the real economy, putting the housing part aside. Thank you. (p. 57)
As it turns out, the Board of Governors of the Fed performed a similar ostrich-like move back in February 1929.* As you can see from the extracts pasted below, Adolph C. Miller was clearly aware of increased speculation in the stock market (a month before the crash in March) but he and a majority of the other members of the board chose not to make a public statement.
Apparently, the officials in charge of the Federal Reserve acted—in 2007 as in 1929—like ostriches with their heads in the sand, hoping the accumulating stresses and strains in the economy would magically vanish.
And, of course, they didn’t—leaving us in both cases on the road to a great depression.
*The minutes of the 2 February meeting are available as a pdf file here.
Tags: art, Bernanke, cards, crisis, games, Wall Street
The series continues with the King of Diamonds: Ben Bernanke.
Repeatedly asserted that subprime was contained.
Tags: Bernanke, election, Federal Reserve, money, Occupy Wall Street, Republicans, rich
Tags: Bernanke, Federal Reserve, monetary policy, quantitative easing, Sesame Street
I haven’t found much insightful analysis of yesterday’s announcement by Ben Bernanke of a third round of so-called quantitative easing.*
For now, Heidi S. Moore seems to have come up with the best analogy:
A lot of people are wondering whether this third round of quantitative easing will help out the jobs situation here in the U.S., but the fact of the matter is, the Fed is really just helping the markets, because that’s all it can do — it has no power over the economy. Think of the Fed as the Cookie Monster. It’s giving the markets a sugar rush.
*John Carney does explain the three features of the new policy that mark a departure from past practices. And according to Felix Salmon, the “real innovation here is that the Fed is moving aggressively into the world of words rather than deeds.”
Tags: Ayn Rand, Bernanke, cartoon, crisis, debt, Obama, Paul Ryan, politics, Republicans, United States
Tags: Bernanke, class, Federal Reserve, Krugman, monetary policy, United States
Is there a real conundrum concerning Federal Reserve Chairman Ben Bernanke aka Helicopter Ben?
Paul Krugman thinks so, because there’s an apparent “divergence between what Professor Bernanke advocated and what Chairman Bernanke has actually done.”
Maybe Professor Bernanke was wrong, and there’s nothing more a policy maker in this situation can do. Maybe politics are the impediment, and Chairman Bernanke has been forced to hide his inner professor. Or maybe the onetime academic has been assimilated by the Fed Borg and turned into a conventional central banker. Whichever account you prefer, however, the fact is that the Fed isn’t doing the job many economists expected it to do, and a result is mass suffering for American workers.
Pavlina R. Tcherneva think so, too—although she sees a different conundrum:
I have been asking myself the same question: why isn’t Bernanke following his own advice? But the answer I give is that it’s because he cannot, literally. Whatever policy options he believes to be genuinely effective actually depend on Congress and not on him. . .
Bernanke understands well that for monetary policy to be effective, fiscal policy must be aggressive (which the Fed always finances). Without bold Congressional action and a large fiscal stimulus package to boost demand and employment, nominal GDP cannot and will not rise to desired levels, no matter what the Fed does. Bernanke knows that despite his commitment to low interest rates and alternative OMOs, what he really needs is big fiscal components, but those can only come from Congress, not the Fed. Bernanke also knows that the US has infinite ability to finance these fiscal components, that there is no solvency issue and that the policy rate and both ends of the yield curve are under the direct control of the Fed. All of this is clear both from his academic writings and policy actions.
William Greider offers a complement to Tcherneva’s view, that Bernanke is actually dissenting from the conventional wisdom and turning toward the Left.
The central bank declines to participate in the happy talk about recovery or in the righteous sermons attacking the deficit. In its muted manner, the Fed keeps explaining why the house is still on fire, why more aggressive action is needed, and is gently nudging the politicians who decide fiscal policy to step up. But its message is ignored by Congress and the president and viciously attacked by right-wing Republicans who say, Butt out.
It’s a pretty extraordinary divergence in interpretations of Bernanke’s monetary policy, and that’s just from within the liberal/left wing of the political-economic spectrum.
Another interpretation is that Fed Chairman Bernanke has done exactly what Professor Bernanke believed could be and needed to be done in terms of monetary policy. The goal throughout has been to avoid deflation and to cap inflation at 2 percent.
And that makes sense once you consider the distributional consequences of monetary policy. The Fed doesn’t do more because, as Bernanke himself explained, it’s already “doing a great deal” and it has no interest in actively seeking a higher inflation rate “in order to achieve a slightly increased reduction — a slightly increased pace of reduction in the unemployment rate.”
As Tim Duy explains,
changing monetary policy at this juncture would likely have significant impacts on the distribution of income and wealth. And an unwillingness to alter this current distribution is likely another reason we would not expect the Federal Reserve to change their basic policy framework away from the current 2 percent inflation target regime.
In the distributional battle of creditors versus debtors, and of capital versus labor, Bernanke has decided to favor creditors and capital, with the promise that—eventually, someday, without rocking the distributional boat—debtors and labor will benefit.
From this perspective, there’s no Bernanke conundrum. And there’s no left-wing tilt on the part of Bernanke and the Fed. There may be a lingering worry about deflation in the housing market (as expressed in the famous January white paper [pdf]), but that’s only because the persistently high level of foreclosures and continuing household deleveraging pose an ongoing threat to bank finances—and therefore to creditors and capital.
I won’t pretend to have a full-blown analysis of Bernanke and the Fed. But I do think, if we want to understand what’s going on, we’re going to have to take seriously the class conditions and consequences of monetary policy.
Here’s Richard Wolff on Bernanke’s speech at Jackson Hole:
If Americans expected some sign of dramatic policy initiatives from Federal Reserve Chairman Ben Bernanke, they were disappointed in Friday’s speech. If they expected a serious assessment of the costs of the failed “recovery program” to date as the basis to argue for a change in approach, they were disappointed. If Europeans hoped for a strong signal that the US would coordinate policies with them and provide some tangible supports to their struggles with this same economic crisis, they were disappointed.
Instead, Bernanke repeated how confident he was in the basic strengths of the US economy while acknowledging that the recovery so far had been less than he had hoped for and that eventual recovery would continue to be “slow.” He chided Congress and the president for not using more expansionary fiscal policy and leaving too much of the burden of overcoming crisis on the Federal Reserve. He reiterated promises of very low interest rates for banks to borrow from the Fed for the next two years. . .
Bernanke admitted what every observer knows, that the US housing market’s current double dip into a second downturn is making economic matters worse. Yet nothing was offered there except ominous references to things eventually improving. They are ominous because “eventually” is a euphemism for the following: let housing prices drop until they are so low that even the falling wages of the US working class will enable some uptick in housing purchases and, so, an end to falling home prices. Meanwhile, the millions of US citizens who invested their only wealth in their homes will have lost a major part of that wealth and, thereby, both hobbled their economic futures and further stalled economic “recovery.”
Bernanke’s words amount to condemning the housing market and, thus, the economy as a whole, to enduring a rough economic cycle in the usual capitalist way. That is, let the system cut wages enough (by lasting high unemployment, above all else) and cheapen the material costs of business enough (bankrupt businesses must unload tools, equipment, space, etcetera, at fire-sale prices) to make it once again profitable for capitalists to hire workers and set up or expand businesses. Then, those workers may earn enough to afford the cheapened homes, and so on.