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Fed Chairman Ben Bernanke is now a hippie

In his column this morning, Nobel Prize-winning economist Paul Krugman recalls the debate of 10 years ago over the wisdom of going to war in Iraq and how anyone who opposed the war was dismissed by the hawks as “a foolish hippie.”

Well, that was then, says Krugman, and THIS is now:

[A] very similar story has played out over the past three years, this time about economic policy. Back then, all the important people decided that an unrelated war was an appropriate response to a terrorist attack; three years ago, they all decided that fiscal austerity was the appropriate response to an economic crisis caused by runaway bankers, with the supposedly imminent danger from budget deficits playing the role once played by Saddam’s alleged weapons of mass destruction.

Now, as then, this consensus has seemed impenetrable to counterarguments, no matter how well grounded in evidence. And now, as then, leaders of the consensus continue to be regarded as credible even though they’ve been wrong about everything (why do people keep treating Alan Simpson as a wise man?), while critics of the consensus are regarded as foolish hippies even though all their predictions — about interest rates, about inflation, about the dire effects of austerity — have come true.

So here’s my question: Will it make any difference that Ben Bernanke has now joined the ranks of the hippies?

Earlier this week, Mr. Bernanke delivered testimony that should have made everyone in Washington sit up and take notice. True, it wasn’t really a break with what he has said in the past or, for that matter, with what other Federal Reserve officials have been saying, but the Fed chairman spoke more clearly and forcefully on fiscal policy than ever before — and what he said, translated from Fedspeak into plain English, was that the Beltway obsession with deficits is a terrible mistake.

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1 Comment

  1. RedRover

    Oh, yeah! Bernanke is an indisputable expert when it comes to evaluating the state of the economy. Just look at his record:

    “House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.”
    — Ben Bernanke, October 2005

    “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
    — Ben Bernanke, February 2006

    “The Federal Reserve is not currently forecasting a recession.”
    — Ben Bernanke, January 2008

    “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
    –Ben Bernanke, March 2007

    “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”
    — Ben Bernanke, October 2007

    “With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.”
    — Ben Bernanke, November 2005

    “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”
    — Ben Bernanke, June 2008

    With that sort of insight, what future economic horrors should we fear when we hear Bernanke say:

    “I don’t see much evidence of an equity bubble”
    — Ben Bernanke, February, 2013
    http://money.cnn.com/2013/02/26/news/economy/bernanke-stock-bubble/index.html

    It is painfully obvious to me that the Federal Reserve’s ultra-low interest rate policies that Bernanke insists upon have driven the stock market up to near record highs ONLY BECAUSE retirees and others living off their savings are forced to look for risky stock investments and other financial instruments to make enough return off their investments to at least match inflation:

    SEE: Ben Bernanke’s War On Senior Citizens
    By Antony Davies & James Harrigan
    Forbes, 12 Dec 2012
    http://www.forbes.com/sites/realspin/2012/12/12/ben-bernankes-war-on-senior-citizens/

    And that ever more of them are getting defrauded in the process:

    Across the country, state securities regulators are reporting an upsurge in fraud cases involving retirement savers who have been lured by brokers into complex investments.

    This trend should not come as a shock. Prolonged periods of low interest rates create the conditions for fraud and bubbles, as investors seek higher yields by putting their money in riskier investments and as asset prices are driven upward. It happened in the dot-com era of the 1990s and in the housing bubble of the last decade, and it is happening now, in the post-financial-crisis world of near-zero interest rates. Yet despite the link between low interest rates and fraud, federal investor protections are being blocked or loosened at precisely the time when more protection is needed.

    SOURCE: Investors Beware [editorial]
    The New York Times, 15 Feb 2013
    http://www.nytimes.com/2013/02/16/opinion/investors-beware.html?smid=pl-share

    Of course, our artificially elevated stock market makes for great business for Bernanke’s stock broker and investment banker pals, so why should he and they care if it is based upon a kind of a Ponzi Scheme that will fail spectacularly in the coming months or years?

    Pat Cunningham: Do you believe that the DJIA would be anywhere close to where it is today, ~14000, if savings account interest rates were back to 3-4% as they were during the 1960s?

    Perhaps Bernanke is some kind of hippy, but if so, one has to wonder what he and Paul Krugman have been smoking, and how long it will take for their pipe dream of an economy to become another nightmare for us all.

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