April 29, 2015

Bernanke as Brave Navigator

By In Blogs, C.Jay Engel

The Wall Street Journal reported this morning that the previous Fed Chairman, Ben Bernanke, was hired at Pacific Investment Management Co. (Pimco) to play a role as a senior adviser.  Two sentences in to the article and we read this gem:MW-BD948_bernan_20130612100419_MG

“Mr. Bernanke, who navigated the Fed and helped steer the economy through the 2008 financial crisis, will provide guidance on the money manager’s investment process and sometimes meet with clients, Pimco said.”

Yeah, he helped steer the economy through the 2008 crisis. Look at us now!

David Stockman, in his monumental The Great Deformation, paints a different scenario of Bernanke, compared to WSJ’s picture of Ben “the Beard” as the calm and collected captain of the US economy.  Here is Stockman:

The September 2008 financial crisis, therefore, was about the need to drastically deflate the Wall Street behemoths –that is, dangerous and unstable gambling houses– fostered by decades of money printing and market rigging by the Fed.  Yet policy veered in the opposite direction, propping them up and thereby perpetuating their baleful effects, owing to a predicate that was dead wrong.

A handful of panic-stricken top officials, led by treasury secretary Hank Paulson and Fed chairman Ben Bernanke, proclaimed that the financial system had been stricken by a deadly “contagion” that had come out of nowhere and threatened a chain reaction of financial failures that would end in cataclysm. That proposition was completely false, but it gave rise to a fateful injunction– namely, that all the normal rules of free market capitalism and fiscal prudence needed to be suspended so that unprecedented and unlimited public resources could be poured in to the rescue of Wall Street’s floundering behemoths.

In other words, Bearded Ben and his team of loose-cannon monetary bureaucrats were not the gallant seafaring men the financial press wants them to be. Rather, over a Great Fright that some economically unstable investment firms may have to go through the pain of recovery following a Fed-induced Wall Street Party, Bernanke, in the heat of panic and against all the laws of economic wisdom, engaged in precisely the same efforts as those which caused the bubble and bust in the first place; namely, expanding the money supply and seeking a reckless policy of interest rate suppression.

Here we are, six years later, and the economy suffers under a deadweight of monetary “stimulus” and the replacement seafaring (wo)man threatens to continue the course.  It astounds me that the cowardly decisions to not let the capital markets continue through their full and painful –but healthy– deflationary recovery phase are seen throughout the established outlets as heroic and brave. It is so blatantly obvious, I suppose, that only the Professional Economists can miss it.

Written by C.Jay Engel

Editor and creator of The Reformed Libertarian. Living in Northern California with his wife, he writes on everything from politics to theology and from culture to economic theory. You can send an email to reformedlibertarian@gmail.com