As Ben Bernanke bids farewell as the outgoing Chair of the Federal Reserve, he reflects on his eight-year tenure. In his final speech, he aims to clarify his actions during his time in office. While a range of subjects were discussed, notably absent was any mention of currency devaluation.
To gain a deeper understanding of Bernanke’s approach as Fed Chair, we should revisit a pivotal speech he delivered years earlier, when he served as a Fed Governor. In this address, he outlined his principles for addressing a deflationary depression. We turn our attention to the Bernanke doctrine, taken from his November 21, 2002, speech titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here.”
“The U.S. Government possesses a technology known as a printing press (or its electronic equivalent), enabling it to generate unlimited U.S. dollars nearly cost-free,” Bernanke stated. “By increasing the quantity of dollars in circulation or even by making a credible threat to do so, the U.S. Government can diminish the dollar’s value in terms of goods and services, effectively raising their prices.”
In this same speech, he referred to a concept called a “helicopter drop,” envisioning a central banker in a helicopter showering individuals with cash. This imagery earned him the nickname ‘Helicopter Ben,’ a title he embraced passionately.
At their core, central bankers tend to fall into two distinct categories: the stooge and the true believer. Here’s a closer look at each type:
The Stooge and the True Believer
Alan Greenspan, Bernanke’s predecessor, exemplified the stooge archetype. Although he authored one of the most compelling defenses of the gold standard two decades before becoming Fed Chair, Greenspan understood that fiat money was fundamentally “a scheme for the confiscation of wealth.” Despite this knowledge, he reveled in the allure of monetary creation and frequently appeared on the cover of Time magazine.
Greenspan was acutely aware of the limitations of using monetary policy to influence the economy, likening it to landing the Lunar Excursion Module with just a magnetic compass. His skill lay in using complex language, known as Greenspeak, to manipulate Congress effectively.
In contrast, Bernanke genuinely believed in the possibility of leveraging monetary policy to lower unemployment rates, increase consumption, and promote prosperity. His time at Princeton, focused on perceived demand weaknesses and supply imbalances, left him with an almost missionary fervor. The countless hours he spent analyzing graphs and devising government interventions intensified his conviction.
Throughout his tenure as Fed Chair, Bernanke was quick to react whenever any metric fell outside his predetermined acceptable range—be it low consumption, high unemployment, or a sluggish housing market. He constantly intervened in the market to reshape it according to his vision.
His approach was consistent: lower borrowing costs and increase money supply. However, he showcased a level of creativity and innovation previously unseen from any Fed Chair.
So Long Ben, and Thanks for All the Memories
Perhaps Bernanke never anticipated he would need to put his theories to the test. Yet when the mortgage market collapsed under the weight of Greenspan’s easy monetary policies in 2008, he instinctively knew how to respond, venturing into uncharted territory for a Fed Chair.
Initially, he slashed the federal funds rate to nearly zero, where it remains. However, when this drastic action did not resolve the crisis swiftly, he opted for increasingly unconventional measures, comparable to techniques seen in less stable economies.
Initiatives like quantitative easing, QE2, operation twist, and QE3 were implemented to artificially suppress Treasury and mortgage rates and shore up both stock and housing markets. This strategy resulted in inflating the Fed’s balance sheet to over $4 trillion, which meant Bernanke effectively quadrupled it by injecting over $3 trillion of newly created money since late 2008.
Through it all, Bernanke approached his tasks with the precision of a skilled surgeon navigating a complex operation. He exuded calm determination, guided by a mix of intuition and bold choices. Indeed, Bernanke displayed a level of audacity often unseen in the realm of central banking.
Yet, despite the chaos surrounding him, he operated with the tranquility of a Zen master. Fully convinced he was salvaging the economy, Bernanke inadvertently facilitated catastrophic consequences while maintaining a sense of serenity and moral clarity. For a central banker embodying the true believer persona, nothing could be more rewarding.
From our vantage point, we’ve watched with both skepticism and fascination. Bernanke consistently captivated us with a remarkable performance, ensuring we were never left wanting for drama…
So long, Ben, and thank you for all the unforgettable moments.
Sincerely,
MN Gordon
for Economic Prism
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