From Ezra Klein

Tom Gallagher, a fiscal and monetary policy specialist at the Scowcroft Group, e-mails to say that I’ve been too harsh on Ben Bernanke, and his rhetorical emphasis on inflation is a way of buying time and political space to ignore inflation . . .

The chart he’s talking about tracks the index for dollar futures, which fell on Wednesday. I couldn’t get Gallagher’s out at a sufficiently high quality, so I snagged a 5-day track from As Gallagher says, the index falls around the time of Bernanke’s speech, suggesting the market heard less about inflation than it had hoped

I am not sure about this. I want to take time to go through the testimony word-by-word and do some analysis but one thing I can tell you straight from memory is that Bernanke’s bit about the dollar was embarrassing for every economist listening. That could have had an effect.

I don’t mean that as a “dis” of Bernanke’s knowledge. Its just that his actualy words were so vacuous as to border on deception. He passed the buck to Tim Geithner’s whose dollar policy, everyone knows, consists of repeating the phrase “The US has a strong dollar policy” while simultaneously trying to convince other central banks, to weaken the dollar.

Then Bernanke ran the tired line about the US having the deepest and most liquid capital markets in the world. Yeah, the dollar was surging just as the US capital markets were on the verge of imploding, the overnight rates were spiking out of control and Wachovia literally could not float commercial paper to save its life. Liquid capital markets, that’s what was going on? Really?

That was flight to Treasuries, pure and simple.

The problem is that doesn’t make sense to many observers who are attached to the view that the US is in fiscal crisis. The idea that US bonds are what you buy when you are scared is hard for them to square.

In part, because they have false beliefs about the actual state of US finances and in part because they misunderstand the concept of existential risk.

However, rather than go into that Bernanke spun the issue. Again, I have done the same myself, especially when I’m  in the room with business folks and I don’t have a lot of time.

Though, I do enjoy saying “If you are selling Treasuries then what are you buying? Ammunition and Water Purifiers?”

However, that line often doesn’t go over well with a certain class of business folks who are under the mistaken impression that all of them can simultaneously run to gold despite the fact that only 5 billion ounces have ever been mined in all of human history and over half of that is currently being used as jewelry.