Neil Irwin suggests that Bernanke’s fears are that of man who is acutely aware that he has something to lose.
But should the Fed overshoot in its plan to pump hundreds of billions of dollars into the economy, it could produce the same kind of bubbles in the housing and stock markets that caused the slowdown. Or the efforts could fall short and fail to energize the economy, leaving a clear impression that the mighty Fed is out of bullets – thus adding even more anxiety to an already dire situation.
Just two years after the world financial system nearly collapsed, it is again gut-check time for Bernanke.
I understand the temptation, I do. However, when FOMC members put on their suits and go into work they are no longer private men and women. They are public administrators. Privately, they are very impressive individuals with resumes that have landed them at the seat of power. Yet, as administrators they are failing miserably.
The members are acutely aware of the dual mandate and that it is not being met in either respect. Prices are too low and unemployment is too high. This is by definition, failure.
Conservatism has its place and is deeply important for an institution invested with as much power as the Fed. However, it is not time for conservatism when your current actions are resulting in a clear and immediate policy failure. No speculation is required. No wistful dreaming of an America built anew.
It is enough to simply look out of the window and see that this America – the one we are currently in – is broken; and it is broken in precisely the way that decades-old analysis would predict. It is broken exactly as Japan was twenty years ago.
In those two decades the basic advice that was offered to Japan has not changed – promise to inflate. So now, in this moment, we should without trepidation do what we advised so many years ago.
Promise to inflate.
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Tuesday ~ November 2nd, 2010 at 11:11 am
jazzbumpa
And, if I have this right, Bernanke was not at all shy about telling the BoJ what it needed to be doing then – exactly what he is AFRAID to do now.
Could it be that the failure of the Fed has caused the OMC to be immobilized by fear?
JzB
Tuesday ~ November 2nd, 2010 at 8:35 pm
sardonic_sob
Actions have consequences. It is easy to advise someone to act when the consequences are not yours. Now that they are, he is learning that it’s one thing to give advice, another to take it. But never mind that.
You want to hear a really radical theory?
I mean a REALLY radical theory?
*looks around cautiously*
Okay, here it is.
Bernanke knows, in his heart of hearts, that inflation is inherently evil. Higher ranked than fire in the dangerous servant, terrible master category. He realizes that while Keynes may have been a genius, he was either deluding himself or stupid in the hideous way that only a really, really smart person can be if he ever thought that governments would actually implement Phase II of a Keynesian economic plan (the part where you pay down debt in good times and don’t talk to me about Clinton’s “budget surplus,” I will shoot you in the kneecap, see if I don’t.) He realizes that he can only make things better in the very short term and even then, he reached the point of diminishing returns long ago. He knows, deep inside where that little voice talks when all the other voices go silent, that even that will only make the end more swift and more sure. So either he is paralyzed by indecision, or afraid to act. He is in zugzwang. He knows it. The timer ticks on.
I *told* you it was radical.
Wednesday ~ November 3rd, 2010 at 12:09 am
Curt Doolittle
@Sardonic.
That’s not radical. It’s accurate.
Friday ~ November 5th, 2010 at 10:32 am
Kenneth Hunter
The herculean efforts of the Fed over the past two years, not to mention decades of debt-oriented policy before it, have created a serious reality: pent up inflation. Rising commodity prices will likely serve, historically, as corrections of devalued levels that have been kept down by a variety of actions, including the attractiveness of other investments in the marketplace.
I do not see any way around inflation growth over the next several years. The problem, right now, is that very few have any resources necessary to endure it without substantial lost. That includes government and its capacity to provide entitlements.
The market has to finally be allowed to reset, and we have to endure the pain we have delayed inflicting on ourselves for decades of sin known as Progressivism. While we dutifully suffer what we have wrought, if we can restore a Constitutional Federal Government far less intertwined with the behavior of the economy, we can do our best to avoid the tendency to “delay” the reality that is natural, cyclical behavior.
Friday ~ November 5th, 2010 at 11:56 am
sardonic_sob
Mr. Hunter:
I don’t disagree with anything you say, but we are not arguing about why inflation is inevitable. We are arguing about why the market refuses to believe that it is inevitable when both the current structure of our financial system AND the outright statements of the entity responsible for monetary creation MAKE it inevitable.
In other words, as you say, the system is going to require price inflation. The Fed has already indicated that it will cause actual (monetary) inflation. Yet most investors are acting as if inflation is not a serious consideration in their investment strategies. Any thoughts on what, other than mass drunkenness, could be causing this cognitive disjunction?