Hating on Benjamin Shalom Bernanke-Paul Krugman

[Dusty Bake Activate]

NYT: Hating on Ben Bernanke

Last week Ben Bernanke, the Federal Reserve chairman, announced a change in his institution's recession-fighting strategies. In so doing he seemed to be responding to the arguments of critics who have said the Fed can and should be doing more. And Republicans went wild.

Now, many people on the right have long been obsessed with the notion that we'll be facing runaway inflation any day now. The surprise was how readily Mitt Romney joined in the craziness.So what did Mr. Bernanke announce, and why?

The Fed normally responds to a weak economy by buying short-term U.S. government debt from banks. This adds to bank reserves; the banks go out and lend more; and the economy perks up.

Unfortunately, the scale of the financial crisis, which left behind a huge overhang of consumer debt, depressed the economy so severely that the usual channels of monetary policy don't work. The Fed can bulk up bank reserves, but the banks have little incentive to lend the money out, because short-term interest rates are near zero. So the reserves just sit there.

The Fed's response to this problem has been "quantitative easing," a confusing term for buying assets other than Treasury bills, such as long-term U.S. debt. The hope has been that such purchases will drive down the cost of borrowing, and boost the economy even though conventional monetary policy has reached its limit.

Sure enough, last week's Fed announcement included another round of quantitative easing, this time involving mortgage-backed securities. The big news, however, was the Fed's declaration that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens." In plain English, the Fed is more or less promising that it won't start raising interest rates as soon as the economy looks better, that it will hold off until the economy is actually booming and (perhaps) until inflation has gone significantly higher.

The idea here is that by indicating its willingness to let the economy rip for a while, the Fed can encourage more private-sector spending right away. Potential home buyers will be encouraged by the prospect of moderately higher inflation that will make their debt easier to repay; corporations will be encouraged by the prospect of higher future sales; stocks will rise, increasing wealth, and the dollar will fall, making U.S. exports more competitive.

This is very much the kind of action Fed critics have advocated - and that Mr. Bernanke himself used to advocate before he became Fed chairman. True, it's a lot less explicit than the critics would have liked. But it's still a welcome move, although far from being a panacea for the economy's troubles (a point Mr. Bernanke himself emphasized).And Republicans, as I said, have gone wild, with Mr. Romney joining in the craziness. His campaign issued a news release denouncing the Fed's move as giving the economy an "artificial" boost - he later described it as a "sugar high" - and declaring that "we should be creating wealth, not printing dollars."

Mr. Romney's language echoed that of the "liquidationists" of the 1930s, who argued against doing anything to mitigate the Great Depression. Until recently, the verdict on liquidationism seemed clear: it has been rejected and ridiculed not just by liberals and Keynesians but by conservatives too, including none other than Milton Friedman. "

Aggressive monetary policy can reduce the depth of a recession," declared the George W. Bush administration in its 2004 Economic Report of the President. And the author of that report, Harvard's N. Gregory Mankiw, has actually advocated a much more aggressive Fed policy than the one announced last week.

Now Mr. Mankiw is allegedly a Romney adviser - but the candidate's position on economic policy is evidently being dictated by extremists who warn that any effort to fight this slump will turn us into Zimbabwe, Zimbabwe I tell you.

Oh, and what about Mr. Romney's ideas for "creating wealth"? The Romney economic "plan" offers no specifics about what he would actually do. The thrust of it, however, is that what America needs is less environmental protection and lower taxes on the wealthy. Surprise!

Indeed, as Mike Konczal of the Roosevelt Institute points out, the Romney plan of 2012 is almost identical - and with the same turns of phrase - to John McCain's plan in 2008, not to mention the plans laid out by George W. Bush in 2004 and 2006. The situation changes, but the song remains the same.

So last week we learned that Ben Bernanke is willing to listen to sensible critics and change course. But we also learned that on economic policy, as on foreign policy, Mitt Romney has abandoned any pose of moderation and taken up residence in the right's intellectual fever swamps.

 

[zerozero]

obviously Bernanke critics are motivated by anti-semitism. I tell you these anti-jewish austrians must be purged from the ranks of acceptable discourse. what kinda name is von Hayek anyway? Sounds Teutonic. Bet he loved Wagner too

 

[Dusty Bake Activate]

obviously Bernanke critics are motivated by anti-semitism. I tell you these jew hating austrians must be purged from the ranks of acceptable discourse. what kinda name is von Mises anyway? Sounds Teutonic. Bet he loved Wagner too

I think it's hilarious that his middle name is Shalom. I didn't even know that until recently. His middle name might as well be

 

[TLR Is Mental Poison]

The key to this is zero Treasury rates. If we can get our house of cards in order we should be able to continue to justify those rates.

 

[Dusty Bake Activate]

The key to this is zero Treasury rates. If we can get our house of cards in order we should be able to continue to justify those rates.

Looks like they're not going to be raising the federal funds rate for a long time. I guess they want to see housing prices pick up before they risk inflation. Hopefully QE3 can help with that. We'll see.

 

[Gallo]

Yep Bernanke haters are dumb. The new round of Fed stimulus has already had a very positive effect on the stock markets and in doing so it has created wealth which should lead to further spending down the road. And the bottom line is we need more spending in our economy. This is an open ended commitment on the part of the Fed and that is a strong message. It's very bullish for the economy, and it will improve the employment situation. I also expect Obamacare will be a boon for the economy in 2014. But the Fed action is no substitute for responsible fiscal policy.

My parents investment portfolio is up 50% year to date. They have not had it this good since 2009 – everyone was selling and they were in there buying. Business has slowed a bit this year. But I think that is mostly due to exogenous factors in Europe. Europe seems to be slowly getting its act together. So all in all, I'm pretty bullish. The only caveat I would give is the election this fall. If Republicans take the field this fall, all bets are off. Republican ideology is not consistent with economic growth and full employment. And given past experience, it appears Romney and the Republican leadership is not able to control some of the more extreme elements of their party. And those extreme voices in the Republican Party, driven by Republican media ratings, are becoming more the norm than the exception within the party.

 

[thekingsmen]

I wonder if VVD will be still kissing BSB's ass by next year?

 

[Dusty Bake Activate]

I wonder if VVD will be still kissing BSB's ass by next year?

Can you not post in my threads please?

 

[Broke Wave]

I hate Bernanke too tho. IDK wtf Krugman is going on about, this guy Bernanke isn't on his side at all.

 

[Dusty Bake Activate]

Yep Bernanke haters are dumb. The new round of Fed stimulus has already had a very positive effect on the stock markets and in doing so it has created wealth which should lead to further spending down the road. And the bottom line is we need more spending in our economy. This is an open ended commitment on the part of the Fed and that is a strong message. It's very bullish for the economy, and it will improve the employment situation. I also expect Obamacare will be a boon for the economy in 2014. But the Fed action is no substitute for responsible fiscal policy.

My parents investment portfolio is up 50% year to date. They have not had it this good since 2009 – everyone was selling and they were in there buying. Business has slowed a bit this year. But I think that is mostly due to exogenous factors in Europe. Europe seems to be slowly getting its act together. So all in all, I'm pretty bullish. The only caveat I would give is the election this fall. If Republicans take the field this fall, all bets are off. Republican ideology is not consistent with economic growth and full employment. And given past experience, it appears Romney and the Republican leadership is not able to control some of the more extreme elements of their party. And those extreme voices in the Republican Party, driven by Republican media ratings, are becoming more the norm than the exception within the party.

Yeah, I'm not too thrilled about Fed action and QE generally seems to shore up the banks' balance sheets and the help the overall stock market, but hasn't done anything to raise help housing prices and very little to stimulate demand in a meaningful way. But it's all we can do to try to give the economy a shot in the arm when we can't do anything on the fiscal front because the Repubs have effectively placed Washington in a state of paralysis.

We need an official Paul Krugman thread as a place to post and discuss all his work, btw.

 

[thekingsmen]

Can you not post in my threads please?

When BB lowers the dollar to crash....will you be giving him props? Answer the question. Your country is at stake b/c of this group but it seems you will side with this man and his motives when you will be out of house and home by next year.

 

[Dusty Bake Activate]

When BB lowers the dollar to crash....will you be giving him props? Answer the question. Your country is at stake b/c of this group but it seems you will side with this man and his motives when you will be out of house and home by next year.

I'm not giving him props. I posted a Krugman article for discussion purposes...intelligent discussion. In other words, please leave.

 

[john goodman]

It's all about inflation, we need to export some shyt

 

[Dusty Bake Activate]

It's all about inflation, we need to export some shyt

Already though? We'd be looking at stagflation.

 

[VerbalIntercourse]

obviously Bernanke critics are motivated by anti-semitism. I tell you these anti-jewish austrians must be purged from the ranks of acceptable discourse. what kinda name is von Hayek anyway? Sounds Teutonic. Bet he loved Wagner too

I'm detecting sarcasm but...

You know that all the Austrians were jews, and although unrelated, that Ayn Rand is also a jew too right?

I mean Peter Schiff is a Jew too.