Tags: jacob | wolinsky | ben | bernanke | fed

If Only Ben’s Hype and Swagger Lived Up to the Facts

By    |   Thursday, 09 Dec 2010 01:41 PM

Ben Bernanke made statements this week which would have sounded normal coming from a teenager, but were shocking to hear coming from the chairman of the Federal Reserve.

Before getting into Bernanke’s comments, no one can accuse me of being anti-Bernanke.

It is obvious to all that Bernanke didn’t see the financial crisis coming.

In 2007, as the housing market started to cool, Bernanke said that "at this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”

Bernanke turned a blind eye to the problem until Lehman Brothers collapsed in September 2008. However, once Lehman went down, Bernanke rescued the banking system and the U.S. economy. He saved the banking system from collapse and launched many programs which stabilized the economy.

Although politically unpopular, I believe then-Treasury Secretary Henry Paulson and Bernanke did an excellent job under the circumstances.

Lately, Bernanke’s job performance has really tumbled. He recently launched a new round of quantitative easing which many economists oppose.

But what really bothered me were Bernanke’s comments on “60 Minutes.”

Bernanke was asked how confident he was that he could prevent runaway inflation. Bernanke answered that he was 100 percent sure he could contain it. These words were absolutely shocking to hear from the chairman of the Federal Reserve.

The first reason is that Bernanke was wrong the whole time about the housing market. He really didn’t act until September 2008 when the U.S. economy was on the brink of collapse. Was he 100 percent sure in 2007 that the subprime crisis was contained? He surely acted that way.

Bernanke clearly made serious errors, and unlike predecessor Alan Greenspan, who has admitted his mistakes, Bernanke still has 100 percent confidence in himself.

As a colleague of mine stated: "Any reporter worth his salt would have followed up with the many Bernanke quotes from the mid 2000s when he predicted that housing was not in a bubble and would not lead to widespread macroeconomic problems."

Secondly, although Bernanke is arguably the second-most powerful person in the world — there are still events he can’t control.

For example, a war with Iran could lead Iran to cutting off the Strait of Hormuz, through which 40 percent of the world's seaborne oil shipments pass. This would likely lead to an astronomical increase in the price of oil.

Bernanke either hasn’t learned his lesson or is being dishonest with himself. The fact that Bernanke is 100 percent sure that his policies won’t cause inflation makes me wonder if he has any backup plan.

Ultimately, if Bernanke is wrong, not only will his reputation be hurt — all of us will suffer from runaway inflation.

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Wolinsky
Ben Bernanke made statements this week which would have sounded normal coming from a teenager, but were shocking to hear coming from the chairman of the Federal Reserve. Before getting into Bernanke s comments, no one can accuse me of being anti-Bernanke. It is obvious...
jacob,wolinsky,ben,bernanke,fed
454
2010-41-09
Thursday, 09 Dec 2010 01:41 PM
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