The View From 1776

Bernanke Stands Ready

Federal Reserve Chairman Ben Bernanke, in his policy speech in Jackson Hole, Wyoming, re-asserted the Fed’s readiness to engage in yet another monetary policy round of quantitative easing.

What that means is pumping still more artificial, fiat dollars into the money supply.  Wall Street today greeted Bernanke’s affirmation that the Fed stands ready to bail out the stock market whenever necessary by a driving up the Dow Jones Industrial Average 90 points. 

The Fed’s monetary policy has benefitted banks, stock brokers, money managers, and the United States Treasury.  Banks are awash with liquidity, and the profitable spread between returns on their loans and investments and their artificially low cost of funds, thanks to the Fed, is producing big profit rebounds.  The stock market has experienced a bull market surge for many months, and the Treasury is able to finance the government’s massive spending deficits with artificially cheap interest rates.

The rest of the economy remains essentially flat.  Unemployment has scarcely budged since 2008, contrary to promises of Keynesian economists.  Pay rates for those who have jobs remain flat or declining.  Retirees and others living on fixed incomes have been robbed by rates of return on their investments lower than the current inflation rate of ca. 3%.

When private businesses finally resume expansion in this country the stage will be set for a round of devastating inflation like that of the 1970s, when the rate of inflation surged to double digits.  Just as on the eve of the 1970s stagflation, Fed economists are confident that their superior intellects will enable them successfully to fine tune the economy. 

Perhaps Mr. Bernanke and his economic planning nomenklatura really do possess that capability, but don’t bet on it.

Read Jim Grant’s opinion on the subject: Ben Bernanke should return the Fed to its golden roots.