Bernanke’s Defense of Fed Monetary Policy Is Utter Nonsense (Video)
Mainstream economists continue to defend and even praise Ben Bernanke’s response to the 2008 financial crisis. But as it becomes more and more obvious that the United States economy never fundamentally recovered from the Great Recession, savvier analysts are speaking up. On Bloomberg TV, David Stockman lambasted Bernanke for flooding the markets with zero-cost money, arguing that the former Fed Chairman’s book would be better titled The Courage to Print, rather than The Courage to Act. Stockman ended with a dire warning for investors:
This market is going to collapse, and if it doesn’t I’ll shave my beard. It’s absolutely going to collapse, because when you give traders and speculators free money overnight, they just roll it. They roll it and roll it. They take every kind of position…”
Highlights from the interview:
“What you heard [from Ben Bernanke] was unadulterated nonsense. On Christmas Eve [of] 2000 after the dot-com bust, the interest rate was 6.5%. In the next 30 months, they took it down to 1%. If you look at originations of mortgages, it grew from a $1.5 trillion rate to $5 trillion annual rate by the spring of 2003. The housing bubble was off and running. It was fueled by the Fed, and then the Fed kept it going by basically the Greenspan put and all the Goldilocks and all the rest of it. To say the Fed had no role in the disaster we had in the mortgage market and the growth in credit, which in that period went from $28 trillion to $55 trillion – to say the Fed had nothing to do with that is just plain nonsense. That’s why [Bernanke’s] book should be titled ‘The Courage to Print’. My view is that it didn’t take any courage to print. It didn’t take any courage to flood Wall Street with zero cost money…
“He should have let AIG go down… The ramifications would have been simple. All of the insurance companies were solvent at AIG. They would have been taken over by their state regulators. What was insolvent was their holding company…
“This market is going to collapse, and if it doesn’t I’ll shave my beard. It’s absolutely going to collapse, because when you give traders and speculators free money overnight, they just roll it. They roll it and roll it. They take every kind of position…”
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Most of us realize that the Federal Reserve Bank should not exist at all. There are two problems with it and the first problem can be identified in Article 1 Section 8 the fifth paragraph which reads: “To coin Money, regulate the Value thereof, and of foreign coin, and fix the establishment of Weights and Measures.”
The States under the Articles of Confederation were vexed and defeated by printed currency. The authors of the current constitution were determined to avoid that mistake and so use the words “to coin” not “to print.” The trouble lies with the phrase “regulate the value thereof.” The ability to regulate is the ability to destroy. It is also the ability to delegate or abrogate, choose your term of preference, Congressional responsibility to an abomination such as the Federal Reserve Bank.
I am convinced that the majority of the Dear Congresscritters sitting in office during 1913 breathed an enormous sigh of relief when the Federal Reserve Act and Sixteenth Amendment were passed.
Almost none of our Dear Critters had a basic understanding of what money is or what it does, just so long as “the Value thereof” was properly regulated by someone — someone — not them. They were tickled pink to be relieved of the burden of being responsible for “regulating the Value thereof.” It was not until LBJ came along that they discovered that the Federal Reserve Bank could and would serve as an infinite supply of credit with which our Dear Critters in every branch could buy votes.
The single most powerful thing on Earth is the power of the market. None may stand against the market and win. In the long run, the market will reign one way or the other. Allowing Our Dear Critters to monkey with it is rather like given a loaded .44 calibre revolver to a chimpanzee.
Now that we can fully appreciated the power of the market, we should behave accordingly, but I am not going to hold my breath and I am pessimistic that we will learn anything from the coming crash. We will be less free then than we are now.