Was Ben Bernanke lying or just wildly mistaken when he claimed the Federal Reserve wasn’t monetizing the debt in the early days of the financial crisis?
The Fed released the minutes from its January Federal Open Market Committee meeting yesterday. There really weren’t any surprises. The minutes emphasized the central bank will exercise “patience” in raising rates and also signaled that its balance sheet reduction program will end soon. A number of figures at the Fed have hinted that quantitative tightening will end in the near future, including Federal Reserve Governor Lael Brainard and Cleveland Fed President Loretta Mester.
The following article was written by Peter Schmidt. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.
When Nixon closed the gold window in August 1971, the US found itself in exactly the same economic circumstances as Britain had in September 1931 when she reneged on her gold standard obligations. If Ben Bernanke’s theory on the Great Depression is correct – namely, that ‘countries that left gold earlier also recovered earlier’ – the United States should have received an enormous economic shot in the arm after finally freeing itself from its formerly golden fetters.
So what has all the resulting money creation and credit expansion from the Fed’s PhD economists with total freedom of action wrought since 1971? A cursory review of the automobile industry, which is not an unreasonable proxy for the entire US economy, reveals that the economy did not receive a shot in the arm by freeing central bankers from their “golden fetters”– unless of course the shot was loaded with some sort of highly-toxic economic poison.
A 1980s era Far Side cartoon featured a veterinary student named Doreen studying equine medicine in Chapter 9 of her textbook. On the left-hand side of the page was a list of horse ailments. They included things like a broken leg, infected eye, runny nose, and a fever to name just a few. On the right-hand side of the page, the treatment for each ailment was “Shoot.” The caption read, “Like most veterinarian students, Doreen breezed through Chapter 9.”
Ben Bernanke, Milton Friedman and the Ivy League economics departments that all regurgitate the same theory on the Great Depression pretty much treat the economy as simple-mindedly as Doreen’s textbook treated equine medicine.
It looks like Trump’s pick to chair the Federal Reserve plans to walk in the footsteps of his predecessors.
In other words, we can expect the legacy of Ben Bernanke and Janet Yellen to continue unbroken. That means a continuation of interventionist monetary policy, artificially low interest rates into the foreseeable future, and plenty of quantitative easing when the time comes.
America is partying like its 1928 – right before the crash the kicked off the Great Depression. Some analysts believe the next crash is looming on the horizon. What will spark it? That remains to be seen. But no matter what the catalyst turns out to be, Mark Thornton says the cause will be the same as the last several collapses – Federal Reserve policy. Therefore, we should dub it the Bernanke-Yellen Bubble-Depression This article by Thornton was originally published on the Mises Wire.
In a recent article I advocated for a new way of naming business cycles. The new approach emphasizes the cause rather than the effect. So instead of the “housing bubble” and “financial crisis,” we should refer to the Greenspan-Bernanke Crisis. Here we will turn our attention to the current situation.