The first thing I ran across is a review of his book, "Essays on the Great Depression” Reviewed for the Cato Journal by Anna J. Schwartz (April 6, 2002). I would have thought that anything from the libertarian CATO institute, would be a blistering attack on government intervention and on the fed in particular, but it was a very nice summary of the book. Which was exactly what I had wanted, since I didn't feel like wading through a book fully of economic jargon.
A very telling paraphragh from the review:
"Bernanke distinguishes at least two channels by which deflation induced depression. A nonmonetary channel that, in his view, linked falling prices and falling output was banking panics and financial crises in choking off normal flows of credit. The decline in financial intermediation that followed from the reduction in banks' ability to lend engendered a fall in the net worth of households and firms holding nominally fixed debt. The ensuing debt crisis increased the number of bankruptcies and became an important propagator of economic contraction."
Sound a lot like todays sub-prime mess doesn't it. If I had read this before the last fed open market meeting I would have bet on the .5 rate cut.
The second item I ran across was: Remarks by Governor Ben S. Bernanke, At the Conference to Honor Milton Friedman, University of Chicago, Chicago, Illinois, November 8, 2002, On Milton Friedman's Ninetieth Birthday.
A quote from that speech :
"It was in large part to improve the management of banking panics that the Federal Reserve was created in 1913. However, as Friedman and Schwartz discuss in some detail, in the early 1930s the Federal Reserve did not serve that function."
Again if I had read this before the fed meeting I would have bet on the .5 cut. The news was full of “bank failures” and Bernanke is convinced that it is the feds job to stop these by any means necessary.
He even quotes Friedman about the great depression:
“Germany had been insulated by her hyperinflation and associated floating exchange rate."
This is a man obsessed with bank failures and runs, but what does he think about the death of the dollar, due to high inflation and the dumping of the dollar as a reserve currency, that have resulted from his policies?
Evidently he thinks it is a good thing!
I'm not at all sure I agree. On the positive side, it is wiping out the federal debt (and everyone else's debt), at a remarkable rate. It also is causing oil to rise, which should cause more conservation. It should also slow or stop the export of jobs and manufacturing.
On the other hand it is going to become increasingly more difficult for retirees to live since their savings are not accruing faster than inflation, while the bogus “cost of living” adjustments of Social security will never keep up with inflation.
A very mixed bag. My brothers enormous mortgage and credit card debt is shrinking, but my fathers life savings are also shrinking. At the same time I have invested heavily in overseas stock markets. The death of the dollar is causing my investments to soar (at least on paper).
So I went looking for some more indications on how Ben viewed the inflation of the Weimar Republic, and found a lengthly endnote in one of his Fed speeches. From that endnote:
“More recent research has shown that attempted bubble popping by monetary policymakers played an even greater role in the onset of the Great Depression than we had thought. An insightful article by Hans-Joachim Voth (forthcoming) has shown how the German central bank, under the famous central banker Hjalmar Schacht, contributed mightily to the demise of the Weimar Republic by aggressively attempting to bring down stock prices in 1927. Schacht's policy was successful, in the sense that the stock market crashed. But investment plummeted as well, and the German economic boom of 1924-1928 degenerated into depression and played a role in the global slowdown. Ironically enough, Voth argues persuasively that in fact there was no bubble in German stock prices, so that Schacht's actions were purely destructive. “
Read the rest of Endnote #16, it basically says that bubble popping if a really bad idea.
So Ben seems to think that inflation (even hyperinflation) is better than depression. At the same time the people happy about a strong dollar (like the Chinese) are going to get really shrill in their dislike of his policies. After all, pegging your currency against the dollar, is now the same thing as tying an anchor around your neck and jumping overboard.
Dollar verses Euro and Yuan.
