Tag Archives: Ben Bernanke

Courage to Print

By Doug Noland

Credit Bubble Bulletin: Courage to Print

Dr. Bernanke has referred to understanding the forces behind the Great Depression as the “Holy Grail of Economics.” I believe understanding the ongoing Bubble period offers the best opportunity to discover the “Grail.” When the Washington establishment believed THE Bubble had burst back in 2000/2001, the leading academic espousing inflationism was beckoned to Washington to provide cover for the Fed’s experimental post-tech Bubble reflationary measures. He first served as a member of the Board of Governors of the Federal Reserve System (2002), before being appointed chairman of the President’s Council of Economic Advisors (2005). From the day Ben Bernanke burst onto the scene in 2002, I’ve taken strong exception with his economic doctrine and analysis.

I have yet to read his new memoir. However, I listened attentively this week as he blanketed the airwaves. As I’ve done on occasion for going on 13 years now, I highlight some of Bernanke’s thinking (and provide brief comments).

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Bernanke on Warren-Vitter & Last Resorts

By Biiwii

Ref. Warren-Vitter and the lender of last resort

[edit] I have had some complaints about writing that I “like” Bernanke and Obama.  That is telling of how divisive today’s financial and political climates are.  I did not write ‘I like the jobs they have done’, after all.  I have not “liked” the job a Fed chief or President have done since I can remember.  It was wording in a post simply implying that I think they are probably nice men.  Sheesh… it would help if some people would actually make the effort to pick up on nuance.  It’s a post answering the assertions of a former Fed chief destined to see the annals of history one day revoke his “Hero” status.

I have always liked Ben Bernanke, in that I think he is a soft-spoken, nice guy who took the hand off from Alan Greenspan in stride, heroically making chicken soup out of the chicken excrement he was left with.  He kept his dignity and calm demeanor during the days when inflationist gold bugs codified the term “Helicopter Ben” and turned it into just another accepted way of saying “Ben Bernanke”.

Mr. Bernanke met the impossible challenges left him by the Greenspan Fed and the Bush White House, and being a scholar of the Great Depression and an intellectual Keynesian, did what he was always meant to do.  He employed tried and true Central Bank policy-making against a natural bust (i.e. reaction to Greenspan’s policy-induced 2003-2007 inflationary boom) of the system.

Continue reading Bernanke on Warren-Vitter & Last Resorts

Bernanke Supercycles

By Alhambra Investment Partners

The frightening possibility that the US economy, and the world with it, remains still bound by a single “cycle” dating back to at least 2007 (and you could even argue 2000 or 1995) brings with it nothing good about future prospects. If 2009 wasn’t really the ultimate end then that would mean the true trough is still to be found. The surface of that problem is that the Great Recession itself counted as a huge subtraction, but ultimately not conforming to symmetry in the recovery stage. Thus, the economy is less and has remained less despite the appearance of positive numbers.

To put more specificity to it requires more than just anomalous figures – though 14 million failed labor potential will suggest nothing less than a serious break with past tendencies. In some ways, the early 1980’s offers a distant template as the initial 1980 recession was created by “inflation” and then re-recession through the very same. In other words, the same problem that existed at the outset of the first event existed entirely through it even if some of the economic figures suggested a comprehensive resolution. To complete the cycle actually meant a second and greater contraction.

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3 Economists Walk Into a Bar…

By Biiwii

It seems that this Bernanke Blog (it’s linked on the side bar at both websites, btw) thing is stirring up intellectuals and psychopaths alike as everyone seems to have an opinion on what I viewed as Bernanke simply being Bernanke (Why Are Interest Rates so Low?  Parts 1 & 2)and really did not pay much attention to.

Enter Larry Summers, who is not a psychopath.  He is another flavor of Keynesian economist and he politely responds to Bernanke.

On Secular Stagnation: A Response to Bernanke (thank you Joe for the link).

I recall Summers as a deflation alarmist back in late 2008 and/or early 2009.  That was when I was trying my damnedest to keep this Time cover front and center in my mind as a contrary indicator as NFTRH worked the thesis that deflation hysteria was pervasive and thus, played out.  It was time for an inflationary view then, not alarmist deflationary hysterics.


I have a market to manage and little time for the egghead stuff.  So I’ll leave you with the link above and a personal view that Larry is wrong with his view of secular stagnation:

“The essence of secular stagnation is a chronic excess of saving over investment.”

As for Nouriel, the rock star economist does not tell us anything we didn’t already know.  Clicking the graphic yields the article at MarketWatch.  But then again, he is a media star.  So apparently his job is to put authoritative verification on an existing trend.

Europe is growing again, but its problems haven’t been fixed, says Nouriel Roubini


Bernanke’s Gibberish Revisited

By Steve Saville

Yesterday I published a short piece dealing with the logical fallacies and self-contradictions in one of Ben Bernanke’s early blogging efforts. David Stockman has since published a more in-depth demolition of the same Bernanke post, titled “Central Banking Refuted In One Blog — Thanks Ben!“.

Stockman starts with Bernanke’s absurd assertion that because the Fed’s actions determine the money supply and the short-term interest rate, the Fed has no choice other than to set the short-term interest rate somewhere. He points out that as originally designed/envisaged, the Fed “had no target for the Federal funds rate; no remit to engage in open market buying and selling of securities; and, indeed, no authority to own or discount government bonds and bills at all.” Instead, “[the] entire purpose of the original Fed’s rediscounting tool was to augment liquidity in the banking system at market determined rates of interest. This modus operandi was the opposite of today’s monetary central planning model. Back then, the rediscount window at each of the twelve Reserve Banks had no remit except the humble business of examining collateral.

According to Stockman: “…in 1913 there was no conceit that a relative handful of policy makers at the White House, or serving on Congressional fiscal committees or at a central bank could improve upon the work of millions of producers, consumers, workers, savers, investors, entrepreneurs and even speculators. Society’s economic output, living standards and permanent wealth were a function of what the efforts of its people added up to after the fact — not what the state exogenously and proactively targeted and pretended to deliver.

Stockman’s point, in a nutshell, is that the machinations of today’s Fed represent one of the most egregious examples of mission creep in world history.

For anyone interested in economics and economic history there’s a lot of useful information in the Stockman post. For example, Stockman notes that during the 40 years prior to the 1913 birth of the Fed, “the US economy had grown at a 4% compound rate — the highest four-decade long growth rate before or since — without any net change in the price level; and despite the lack of a central bank and the presence of periodic but short-lived financial panics largely caused by the civil war-era national banking act.

In fact, Bernanke’s short post and Stockman’s lengthy rebuttal make an interesting contrast. The former is gibberish, whereas the latter displays a good understanding of economic theory and history.

Bernanke’s Fallacies…

By Steve Saville

Bernanke’s logical fallacies and self contradictions

Former Fed chief Ben Bernanke now has a blog. This is mostly good news, because he will certainly do less damage as a blogger than he did as a monetary central planner. However, it means that he is still promoting bad ideas.

I doubt that I’ll be a regular reader of Bernanke’s blog, because his thinking on economics is riddled with logical fallacies. Some of these fallacies were on display in his second post, which was titled “Why are interest rates so low?“. Some examples are discussed below.

In the fourth paragraph Bernanke states: “The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth — not by the Fed.” However, earlier in the same paragraph he states that the real interest rate is the nominal interest rate minus the inflation rate, that the Fed sets the benchmark nominal short-term interest rate, that the Fed’s policies are the primary determinant of inflation and inflation expectations over the longer term, and that inflation trends affect interest rates. Also, the Fed clearly attempts to influence the prospects for economic growth. So, by Bernanke’s own admission the Fed exerts considerable control over the “real” interest rate. In other words, he contradicts himself.

A bit further down the page he states: “…[the Fed’s] task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate, or — more realistically — its best estimate of the equilibrium rate, which is not directly observable.” And: “[the Fed] must try to push market rates toward levels consistent with the underlying equilibrium rate.”

So, having said in the fourth paragraph that the Fed has minimal control over the real interest rate and then contradicting himself by saying that the Fed controls or influences pretty much everything that goes into determining the real interest rate, he subsequently says that the Fed’s task is to push the market interest rate towards the “equilibrium rate”, which, by the way, is unobservable. Now, the so-called “equilibrium rate” is the REAL interest rate consistent with optimum usage of resources. In other words, he’s now saying that the Fed’s task is to push the REAL market interest rate as close as possible to an unobservable/unknowable “equilibrium rate”, having started out by claiming that the Fed doesn’t determine the real interest rate. I wish he would at least keep his story straight!

As an aside, the equilibrium rate is the rate that would bring the supply of and demand for money, capital and other resources into balance, which is the real rate that would be sought by the market in the absence of the Fed. In other words, if the Fed did its job to perfection, which is not possible, then it would be constantly adjusting its monetary levers to ensure that the market interest rate was where it would be if the Fed didn’t exist.

Bernanke goes on to say that today’s US interest rates aren’t artificially low, they are naturally low. Apparently, the Fed’s ultra-low interest rate setting is a reflection of a naturally-low interest-rate environment, not the other way around. This prompts the question: Why, then, can’t the Fed just get out of the way? To put it another way, if default-free nominal interest rates would be near zero and real interest rates would be negative in the absence of the Fed’s gigantic boot, then why can’t the Fed allow interest rates to be controlled by market forces?

It seems that Bernanke cleverly anticipated this line of thinking, because in a beautiful example of circular logic he says “The Fed’s actions determine the money supply and thus short-term interest rates; it [therefore] has no choice but to set the short-term interest rate somewhere.” That is, the Fed can’t leave the short-term interest rate alone, because if the Fed exists it will inevitably act in a way that alters the short-term interest rate. Clearly, Ben Bernanke can’t even imagine a world in which there is no central bank.

Ben Bernanke ends his post by putting aside all the talk in paragraphs 5 through 9 about the Fed’s efforts to control the real market interest rate and by reiterating his comment (from paragraph 4) that the Fed doesn’t determine the real interest rate. As a final piece of evidence he notes that interest rates are low throughout the world, not just in the US, but forgets to mention that central banks throughout the world are behaving the same way as the Fed.

This is a Test…

The saying goes that every new Fed Chair is tested (but good) upon taking the reins.  In order for that test to come about, it seems that more often than not the previous Fed Chief will have been withdrawing at least some of the particular policy (Greenspan:  Easy Fed Funds for Easy Al, Bernanke:  Easy Fed Funds/ZIRP & QE bond buying) that had made them look like heroes to so many during their tenure.  Here, have a look…


Greenspan was withdrawing the post-dot.com bubble policy that had created a massive credit bubble when poor Ben Bernanke took over.  Ben’s Waterloo was the 2008 crash.  Enter ZIRP and QE to da moon.  Now, a withdrawal of some of that for poor Janet.  One wonders what her inflation is going to look like after whatever her baptismal event will be.

End of an Era

Guest Post by Doug Noland

Bernanke chairs his final FOMC meeting.

I hope to at some point offer a more complete review of Ben Bernanke’s tenure at the Federal Reserve. I will be fascinated to see how future historians view the Bernanke doctrine. From my perspective, the Bernanke Era has been an abject failure. He was the most outspoken proponent of post-tech Bubble reflation. The noted academic was keen to use the government printing press – not to mention mortgage Credit – to fatefully drive asset inflation and stimulate a particularly unbalanced U.S. economic boom. I will give him less than zero Credit for then inciting an even greater Bubble, again in the name of system reflation, after the 2008 crisis.

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The Departing Bernanke on Macro-Prudential

Guest Post by Doug Noland

If the beginning is any indication, 2014 seems destined to be an unsettled year – the markets, the data, the Fed and U.S. and global economies.

Q&A from the National Association of Business Economics conference, Philadelphia, January 3, 2014: William Nordhaus, Yale University economics professor and chairman of the Federal Reserve Bank of Boston: “I asked my students if they had a question for [Bernanke]. And there were a number of them, one which I won’t ask is ‘what about bitcoin?’ – which I know he knows about. But I thought a really interesting one was this: ‘If you knew in 2006 what you know now, what step or steps would you have taken then to prevent or ameliorate the financial crisis and subsequent severe downturn?’”

Continue reading The Departing Bernanke on Macro-Prudential