Federal Reserve Chairman Ben Bernanke seems to be under constant scrutiny. Critics—including senators, presidential hopefuls, and editorial writers—have all weighed in on his performance. But what’s the reason for this backlash?
To understand the situation, it’s important to recognize the fundamental role of the Federal Reserve Chairman: to provide the global economy with the cheap money it craves. By any standard, Bernanke has excelled in this department. Initiatives like CPFF, MMIFF, TAF, QE, and QE2 showcase his exceptional skills in monetary policy, surpassing even the capabilities of his predecessor, Alan Greenspan.
Despite these accomplishments, Bernanke often faces criticism instead of gratitude. For instance, on Tuesday, he found himself defending against a Bloomberg News article claiming that the Fed secretly loaned or guaranteed over $7.7 trillion to support banks during the 2008 financial crisis. In response, Bernanke stated in a letter to Congress that the article was filled with “errors and mistakes,” defending the bailout as a necessary measure to avoid a repeat of the Great Depression’s financial collapse.
While critics may question Bernanke’s strategies, many consumers have benefitted from the availability of cheap money he has provided.
Folly of the Savers
Consumers have embraced Bernanke’s cheap credit with enthusiasm. According to recent Federal Reserve data, consumer borrowing surged by $7.65 billion to reach a total of $2.46 trillion in October, driven largely by increases in auto and student loans.
Consumers are simply acting in line with what the Federal Reserve has encouraged: spending on credit appears to be the most logical choice given the distortions in the capital markets. With savings accounts yielding a mere 0.45 percent and inflation rising at 3.5 percent, saving money seems foolish.
While we may not endorse this scenario, we cannot ignore the reality it presents. Due to the Federal Reserve’s heavy-handed interventions, individuals who choose to save their money in dollars are essentially penalized.
At the Economic Prism, our criticism of Bernanke extends beyond his leadership; we question the very existence of the Federal Reserve. Remarkably, life was manageable without it a century ago. Back then, a dollar held its value over the years, allowing people to accumulate wealth through savings. Since the Fed’s inception, however, a dollar has diminished to approximately three cents, making savers look foolish.
Graphs Over Reality
Another concern we have with Bernanke is his reliance on graphs. It seems he believes that showcasing favorable data implies real improvement in the world.
For instance, Bernanke aims to illustrate a GDP growth rate of 3 percent. When reality falls short, he scrambles for solutions, invariably resorting to the same approach: flooding the market with cheap credit.
The issue with graphs is that they can be misleading. If GDP rises due to a spike in debt-fueled consumer spending, this doesn’t accurately reflect genuine economic growth but rather a sign of increasing consumer hardship.
Contrary to Bernanke’s confidence in data, the economy is a complex entity that cannot be simplified into mere charts and statistics. It breathes and evolves, requiring balance in its functioning.
Unfortunately, Bernanke seems intent on inflating the economy with endless credit, risking a detrimental outcome when it becomes unsustainable. That’s when the graph will no longer display his desired trends and will plummet instead.
Sincerely,
MN Gordon
for Economic Prism