Earth to Ben Bernanke

When the financial crisis struck in 2008, many economists took comfort in at least one aspect of the situation: the best possible person, Ben Bernanke, was in place as chairman of the Federal Reserve. Bernanke was and is a fine economist. More than that, before joining the Fed, he wrote extensively, in academic studies of both the Great Depression and modern Japan, about the exact problems he would confront at end of 2008. He argued forcefully for an aggressive response, castigating the Bank of Japan, the Fed’s counterpart, for its passivity. Presumably, Fed under his leadership would be different. Instead, while Fed went to great lengths to rescue the financial system, it has done far less to rescue workers. US economy remains deeply depressed, with long-term unemployment in particular still disastrously high, a point Bernanke himself has recently emphasized. Yet Fed isn’t taking strong action to rectify the situation. Bernanke Conundrum, the divergence between what Professor Bernanke advocated and what Chairman Bernanke has actually done, can be reconciled in a few possible ways. 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 (…..) My best guess is that the disappointing response of the Bernanke Fed represents the effects of both bullies and the Borg, a combination of political intimidation and the desire to make life easy for Fed as an institution. Whatever the mix of these motives, the result is clear: faced with an economy still in desperate need of help, the Fed is unwilling to provide that help. And that, unfortunately, makes the Fed part of a broader problem. Consider, if you will, current state of our nation. Despite hints of economic progress, we’re still in the midst of an immense disaster, in which unemployment and underemployment are devastating millions of American lives. And none of this need be happening! There has been no plague of locusts; we have not lost our technological know-how. Americans should be richer, not poorer, than they were five years ago. Yet economic policy across the board has become almost passive, has essentially accepted this disaster instead of trying to end it. The Fed under Bernanke is by no means the worst sinner in this failure of intellect and will, and you can argue that Ben Bernanke has done a better job than anyone else who might have held his position. Yet the fact is, he has not done remotely enough. The Fed, under its eminent chairman, was supposed to be an important part of the solution to mass unemployment. That isn’t happening.



Acerca de ignaciocovelo
Consultor Internacional

4 Responses to Earth to Ben Bernanke

  1. Professor Uziel Nogueira says: An old Brazilian adage says: He that knows, DO. He that doesn’t know, TEACH. Prof Ben Bernanke, the FED boss, faced a tough choice during the 2008 financial debacle. Either rescue the financial system or rescue the workers. Wall Street or main street. The financial system won easily. A financial meltdown would emerge the US and the world economy into another 1930s depression. Now, Ben’s loose monetary policy post-debacle is highly questionable. US deep seated economic problems cannot be solved with printing huge amounts of cheap dollars. The huge amount of dollars dropped into the economy is not being translated into job creation to bring down the unemployment rate. The dollars are flowing into high growth economies –particularly BRICS — causing unnatural appreciation of their exchange rate and loss of trade competitiveness. Brazil’s economic authorities refer to the cheap dollar policy as the exchange rate war. The important lesson from the 2008 debacle is clear. Years of a misguided economic policy dominated by cheap credit and a cheap dollar has led the US to an economic debacle and a threat to the world economy. Years of macroeconomic mismanagement cannot be reversed easily. Even if we could assemble a committee of Nobel Prize economists, led by the two-economists Lawrence Summers and Paul Krugman.

  2. Mike Hughes: Uziel, Most in the USA would see increasing the BRIC’s currency exchange rate as a positive and a desired good for the USA. What’s good for China or Brazil is not in this case good for the USA.

  3. Tony: Having traveled in Brazil from 1963 to 1998 and observed the results of inflationary practices on the Brazilian economy, I must concur with Mr. Nogueira’s posting. IMHO What the US is lacking is confidence by the workers on the various schemes that have been put forth by the Obama administration.

  4. Laura Guarnieri: I agree with you. Just a few remarks economic policy is not done in a vacuum. It is determined by the asymmetric economic and political power. As the financial crisis exploded there were many different ways to save the financial system. One of them would be through saving the workers and families. The reason for keeping the interest rate so low and for so long and cheap dollars was never been to incentive the demand by the real sector. The Banks can´t lend because there is no demand from the real sector. The real reason was always been to keep the accumulation of capital in the financial system. It is very important to note that the economic growth pattern changed and the 2008 financial crisis is a demonstration of it. It was the financial bubble which caused the housing bubble, and not the other way around. In this new pattern, the monetary policy will continue to be the same, with all the well known consequences. The BRiCs will have to learn to deal with cheap dollar and, one way will be defend their internal economy. And keep the internal financial system under control with enough profits that it does not have to be part of the insanity of securities and other financial.


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