More Reason to Ignore Krugman and Bernanke's Big Helicopter Drop: Round Two
The fact that Krugman calls Bernanke's term a "success" should raise approximately 15,031 red flags to dear reader, give or take (again, I'm no mathlete).
Ben S. Bernanke deserves another term as Federal Reserve Chairman based on his success in battling the financial crisis, said Princeton University Economist Paul Krugman, a winner of the Nobel Prize.
“He’s earned the right to a second term,” Krugman, 56, said yesterday in an interview in Kuala Lumpur. “He turned the Fed into the financial intermediary of last resort. When the banking system failed to deliver capital where it was needed, he put the Fed into the markets.”
Debate over the fate of Bernanke, 55, is intensifying as he nears the end of his four-year term as chairman on Jan. 31. While Krugman and economist Nouriel Roubini have voiced support for the former Princeton economist, others including Anna Schwartz have said a lack of transparency exacerbated the financial crisis.
“I think Bernanke has done a really good job,” Krugman said. “He failed to see this coming and he was behind the curve in early phases. But he’s been really very good in the sense that it’s really very hard to see how anyone could have done more to stem this crisis.”
Krugman was recruited to join Princeton in 2000 by Bernanke, who was chairman of the school’s economics department at the time.
As his terms draws near an end, Bernanke has written in the Wall Street Journal and appeared on television to defend the unprecedented actions he took during the financial crisis.
“In a financial crisis, if you let the big firms collapse in a disorderly way, it will bring down the whole system,” Bernanke said last month at a town-hall-style meeting in Kansas City, Missouri, taped for broadcast on PBS television. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”
Under Bernanke’s stewardship, the Fed cut the benchmark lending rate to as low as zero and expanded credit to the economy by $1.1 trillion over the past year.
Joseph Stiglitz, another Nobel Prize-winning economist, said on Aug. 5 that he expects a “very slow recovery” and that a replacement for Bernanke should be considered.
“There are lots of potholes in the road,” Stiglitz, a Columbia University economics professor, said in an interview. “There are problems in commercial real estate. We know that there will be more foreclosures in the mortgage market” and “we know we don’t know the state of the banks.”
Has Krugman been watching the same financial crisis as we have? Just curious.
Not surprisingly, Gary North gets it better than Krugman could ever hope to in this December 2008 piece on the "Bernanke playbook" (stick that in your Nobel and smoke it, PK):
Alan Greenspan never had a playbook, as far as we know. His famous Fedspeak was designed, not to conceal the plays from investors, but rather to conceal the fact that he had no playbook.
Ben Bernanke is different from Greenspan. He has a playbook. He has spent his career studying Milton Friedman's now-dominant 1963 interpretation of the failure of Federal Reserve Policy, 1930–33, in not reversing the Great Depression. The FED did not inflate, Friedman said. This was in contrast to Murray Rothbard's 1963 interpretation of the same era. He argued that the FED did inflate, 1924–29, which created the boom that busted in 1929. Had Bernanke studied Murray Rothbard's 1963 book on Federal Reserve policy as the cause of the Great Depression, he might have had a very different career, perhaps teaching in a community college in North Dakota.
He is not fluent in Fedspeak. Who is? So, he has a different strategy. Lay it out in deadly dull Profspeak. Add footnotes. Deliver the speech to the National Economists Club, an association of men and women who have mastered Profspeak. No problem.
The inflation calculator of the Bureau of Labor Statistics indicates that goods costing $1,000 in 1980 would have cost over $2,000 in 1999. The cage was way too large for my taste.I can't figure out what's scarier; having a real central banker at the helm of the Fed (our boy homicidal maniac Alan Greenspan knew how to use the central banker swagger to accomplish whatever strange objective he may have brewing in his brain) or a soft-spoken book worm with a Great Depression Obsession.
Although a number of factors converged to make this happy outcome possible, an essential element was the heightened understanding by central bankers and, equally as important, by political leaders and the public at large of the very high costs of allowing the economy to stray too far from price stability.
Over the next four years – maybe longer – these words will come to haunt Dr. Bernanke.
Then he moved from a discussion of inflation (rising prices) to deflation (falling prices).With inflation rates now quite low in the United States, however, some have expressed concern that we may soon face a new problem – the danger of deflation, or falling prices.
This in retrospect is strange. Who was worrying about deflation in 2002? From the day he became Chairman until the day he left office, Greenspan had warned publicly against inflation. Then the FED inflated. Why this shift? Was Bernanke trying to shift the debate to the opposite issue? No. He was heading it off at the pass.
He began with the definition of inflation common to all schools of economic opinion except the Austrian School: rising prices. Inflation is the opposite of deflation. Here is how he defines deflation."Deflation is defined as a general decline in prices, with emphasis on the word "general."
He does not define inflation as a rise in the money supply, with the effect being rising prices. To define it this way would identify the source of rising prices: the central bank and the fractional reserve commercial banking system.
I do know, however, that anything is better than seeing Larry Summers' greasy mug taking the spot at the head of the FOMC table.
I'm totally okay with going on record to say "barf" on that.