Monetary Policy

"Bernanke Did Not Get a Single Thing Right."



Take heart. It's probably cold where you are, but in just a few weeks Ben Bernanke will see his shadow and we can all start working on our "long hot summer" thumbsuckers. In the meantime, get your blood boiling with the always dyspeptic Mish Shedlock, who has a nice roundup of Ben Bernanke detractors.

The gist: Time's carbon-based biped of the sidereal year (though not the tropical year) is a failure dipped in bad luck, a schlemeil, a man who exudes death. And yet you'd be a fool to bet against his (now supposedly controversial) Senate reconfirmation as chairman of the Federal Reserve Bank.

As surely as Earth rests at the center of a finite series of interlocking crystalline polyhedrons within the compass of a benevolent prime mover, so Ben Bernanke will clear all challenges and have his woeful career extended by the U.S. Senate.

So enjoy the high-profile Bernanke hate while you still can. This invective from The New York Times' David Leonhardt draws on real estate economist Robert Shiller and announces its sarcastic purpose in the first sentence: "If only we'd had more power, we could have kept the financial crisis from getting so bad." And in BusinessWeek, Stanford economist John Taylor, inventor of the "Taylor rule" for monetary policy, pummels Bernanke's preposterous claim that low interest rates did not inflate the housing bubble.

Mish has more, including some contempt for the Taylor Rule [pdf] itself, and some discussion of how the rule is constructed, which is too heady for me.

The real question: Is there any official whose failure is more clearly displayed in the United States in 2010? This is not President Obama, who can claim to have inherited a mess. This is a man who has been in his office since the beginning of 2006. What chart, what graph could you possibly still need to see to understand what a complete and utter buffoon Ben Bernanke is? The evidence echoes in every boarded-up storefront, every vacant mall, every soup line in every town in every state.

NEXT: Loose Change, Islamic Republic of Iran Edition

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  1. This is not President Obama, who can claim to have inherited a mess. This is a man who has been in his office since the beginning of 2006.

    Bernanke did inherit a mess. It just hadn’t spilled yet.

  2. They say he’s experienced with what went wrong.

    Reminds me of an old Mad Magazine bit about ads we’d like to see. The caption was TWA: World’s Most Experienced Airline (which was really their motto at the time, for you young’uns). The photo was of a smashed up crashed plane.

    1. Economists:
      sociologists pretending to be physicists.

  3. “Why is there a 50x scale human-feces-and-cottage-cheese recreation of a pigeon dropping in here?”
    “All this cheese was on the floor when I got here. All except like half of it.”
    “So you put more?”
    “It was the wrong shape.”
    “And you took a huge shit on it.”
    “Me and like forty-eight dudes. And some dyke I thought was a dude until she was already shitting. That was weird.”
    “And this seemed like a good idea because…?”
    “Well, I inherited a mess. But now, it’s, like, resolute.”

  4. Pre-emptive strike on all the trolls who will say that this is a failure of capitalism and not Ben Bernanke:

    We put Ben Bernanke in charge of the economy, not capitalism.

  5. Haven’t the Dems had control of congress since 2006? Could that be a good excuse?

  6. Mr. Cavanaugh deserves the best alt text award.

  7. This is not President Obama, who can claim to have inherited a mess.

    Oh please. Bernanke inherited the mess from Greenspan.

    What chart, what graph could you possibly still need to see to understand what a complete and utter buffoon Ben Bernanke is?

    Who needs charts or graphs to understand that? It’s all clearly defined in video, like this and this

    If a dumb jock and a douchebag lawyer can understand it…

    1. Steve Young or Tony LaRussa or Len Elmore could be both in one.

    2. If you continue most of the policies of your predecessor, you lose your right to claim you inherited a mess. This goes for Obama too.

      1. Sorry, the first statement was sarcasm. But, not to say, either, that Greenspan’s policies didn’t contribute.

    3. Thanks for those two links.”this”and “this”. So we ‘ve taken a stock market hit due to lack of confidence in Bernanke – Let’s not waste agood crisis and dump him now.
      Marx said history repeats, first as a tragedy and secondly as a farce. Perhaps he should have studied music rather than the Great Depression.

  8. The basic Taylor rule isn’t rocket complicated.

    Fed Fund Rate = Current Inflation + Equilibrium Real Fed Fund Rate (generally 2% ish) + 1/2(Observed Inflation – Desired Inflation) + 1/2(Full Employment GDP – Current GDP)

    1. There are as many variations as there are published economists.

    2. Your PDF is the generalized rule which is just the classic rule + a few things. I posted the classic rule, which is more than enough to understand what is going on. The majority of the tweaks are just refinements down to a more specific rate.

  9. Line up the Bernanke detractors and they fall into two camps – either Bircher goldbugs or the economically illiterate.

    1- Risk standards were thrown away 02-06
    2- the bubble of 2002-06 was on Greenspan’s watch
    3- Rating agencies sold AAA’s like crack
    4- the myriad of “supervisors” included the OTS, OCC (Treasury), the SEC, and the FDIC
    5- when the bubble popped in summer of 2007 Bernanke acted slowly – but he did act commensurate to the problem. Why ease then?
    6- When the shit hit in the fan in 08 Bernanke poured on the QE, CE and propped up the commercial paper/money market as much as needed to prevent total meltdown. ($5 trillion was withdrawn on 9/16/08).
    7- He acted without taxpayer funds – unlike Congress.
    8- The major banks – while incompetent, survive today with all deposits intact (goal accomplished)

    1. I’d post a rebuttal, but I learned not to argue with accountants and just send them my taxes because they generally fall into the latter of your either or equation.

    2. I do not fall into either of those two camps and I am a detractor.

      1. And you’re a smart guy. I’d actually be interested in what you think.

        We have time to kill before Alabama stomps Texas.

        1. I flunked econometrics (in reality) but because the prof liked me and could kick my ass in raquetball even though he was 60 pounds overweight he gave me a C-.

          Are you rooting for the Tide? I’m thinking that you are right on your prediction. However, I think that Boise State should be national champions if either team wins tonight’s game in unimpressive fashion like a 6-3 game.

          1. I never had you figured for an affirmative action student.

    3. If Bernanke reversed Greenspan’s destructive policies upon assuming office in 2006, you’d have a point. Hell, if he’d even identified them you’d have a point.

      1. The market reversed policy.

        Where loans were flowing like wine up until 2006 they are now extremely difficult to obtain.

        No Congress, no law, no Fed tightening, no bogus conspiracy “CRA” interventionist theories – it has been a pure market-driven credit squeeze.

        Bulls gallop en masse – bears hibernate.

    4. I’m not in either of your camps either. Not a Bircher, not a goldbug, not economically illiterate. But I think Bernanke is a dolt.

      Bernanke is supposedly an expert on the Great Depression. He knows enough that the deflation of the early 1930’s sent the economy into a tailspin. But instead of simply not contracting reserves in 2008, he does the exact opposite, and pumps reserves up to ridiculous levels. His reasoning must be that since slamming on the brakes caused a rear-end collision, stomping on the accelerator must be how you prevent accidents.

      1. Milton Friedman blamed the Fed for tightening in 1931-32. In response to his criticism, Bernanke said (speaking for the Fed)-

        “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” [

        1. OK, I’m on the fence about Bernanke, but curious about one of the tools he’s using.
          As I understand it, the Fed has handed out quite a bit of new money which is held by several banks as reserve and is, strangely, and interest *paying* loan.
          So it is in the banks’ interest (‘scuse me) to hold that money and not lend it, but it still counts as part of the reserve, a sort of a ‘un-powered money’.
          Either the guy is a genius for inventing M-‘X’, or he dies a fool from unintended consequences.
          So far, I’ve gotten shrugs in answer to which it’ll be; your comments?

          1. Don’t know.

            The Fed is required by law to pay a 6% dividend on “stock held” by member banks (who are required to buy Fed stock).

            So Goldman Sachs got Fed window privileges in 08 and is now living the life with 6% on what could be (perhaps .25% window dressing from said Fed).

            Nice gig, huh?

            The downside is that they and Morgan Stanley are now subject to Fed scrutiny and regs.

            1. But Fed stock isn’t high-powered money, right? It’s just part of, say, a portfolio?

              1. It’s not high powered money. Currency and Vault Cash.

                1. I should qualify that, Vault cash is liquid notes as well. Fed stock is illiquid.

                  1. Should also not the stock is held in regional reserves.

                  2. I think that’s the point.
                    Fed stock is not HPM, nor is the M-“X” that pays interest.
                    Bernanke claims to be using Friedman/Schwartz monetary theory, but that theory is based on ratios between HPM (M-0?), M-1, M-2, etc. Bernanke seems to have invented the new M-“X” and the effects of that is an unknown, apparently.
                    But it’s not a trivial amount, and I doubt the effects are trivial.

                    1. That’s basically what he did. I’ve never really looked at it as M-x.
                      But that’s really a good way to describe it. The next question is how far will this be allowed to travel in the system. The Fed supposedly has a way to unwind it, but many fear this money getting out into fractional reserve system. Then we are fucked^nth.

                      It’s also interesting the amount of control the fed now has over the fed fund rate. By paying interest they can in theory narrow the rate down to what every they want. Interesting what if scenario.

                    2. hmm|1.7.10 @ 11:02PM|#
                      “That’s basically what he did. I’ve never really looked at it as M-x.
                      But that’s really a good way to describe it. The next question is how far will this be allowed to travel in the system. The Fed supposedly has a way to unwind it, but many fear this money getting out into fractional reserve system.”
                      OK, it’ll stay where it is as long as:
                      A) It has value as a portion of the reserves (acting as M-0), and:
                      B) It pays more sitting there (a portion of the banks’ profits) than it does being loaned.
                      I don’t know what it pays, nor do I know what the ‘new regs’ are going to require for reserves. But Bernanke is betting (with our money) that he can keep it as M-X rather than turning fugitive to M-0, M-1, etc.
                      I sure hope he has a plan to corral it after the interest rates increase.

                      “Then we are fucked^nth.”
                      Dunno. “There’s a lot of ruin in a country”

                    3. I completely agree. As long as it stays reserves we are fine. The mechanisms I see available to be used to keep in in reserves are fear, legislation, and interest paid. That seems like an awfully shaky basis from which to make a stand for keeping the injected funds (M-x) from moving into M0 or 1.

                      I have no choice but to hope he has a plan and we are all in that boat. I personally can see no good to come if the money moves into the market. The degree to which it will reek havoc is in my opinion high, but I’m sure there are a range of opinions on that.

                      It’s definitely a sticky wicket.

    5. “7- He acted without taxpayer funds – unlike Congress.”

      You are aware that the money Bernanke injected into the banks comes from somewhere…. aren’t you?

      1. yeah – from the Fed itself.

        The euphemism is called “printing money”.

        Its inflationary except in a crisis*.


        1. When the Fed does it, it’s “quantitative easing”.

          When you or I do it, it’s “counterfeiting”.

          1. That is pretty damned snappy. Good one.

            The alternative is to depend on old JP Morgan line up investors to possibly bail the country out or hold the country hostage (panic of 1907)

        2. shrike|1.7.10 @ 9:29PM|#
          “yeah – from the Fed itself.
          The euphemism is called “printing money”.
          Its inflationary except in a crisis*.”
          Or, except in an expanding economy which requires additional money, right?
          That’s the reason the gold standard fails.

    6. >He acted without taxpayer funds

      Bullshit. Inflation is a tax, and he inflated the money more than anyone in the history of this country.


  10. As surely as Earth rests at the center of a finite series of interlocking crystalline polyhedrons within the compass of a benevolent prime mover

    Layin’ it on a bit thick today. Try not to let your fanclub push you into incoherent verbosity.

    1. Come on, you liked the line.

    2. Also, the plural of polyhedron is polyhedra, and the Ptolemaic system involved spheres, which are not polyhedra.

      I like a line of Roget worship as much as anyone, but it’s a three-edged sword if not done correctly.

      1. Good point. Does getting the plural wrong, per se, push the line into the realm of the three edged sword?

        1. As a matter of policy, I do not criticize or even mention grammatical errors under normal circumstances. But like my mom always said, if you’re going to flaunt your large breasts wearing a skimpy bikini, there better not be any nasty scars visible on their undersides.

        2. The most common way to express the plural in English is for nouns to add an ‘s.’ It’s an overzealous prescriptivism that will insist that certain romance-based words take a Latin or Greek plural. Usage makes the rule, if done in patterned consistency

          1. According to GoogleBattle, polyhedra has 809,000 hits while polyhedrons has only 104,000. So it looks like usage is on the side of us prescripitivists.

            1. 104,000 thousand is a very large pattern – not just some random usage apparently. Of course you can expect to see some variation in usage – it’s a part of, or like, a dialect difference.

      2. the Ptolemaic system involved spheres,

        Kepler started out believing that the relative sizes of the spheres could be explained by the relationship of platonic solids within them.


  11. I never RTFByline first, and when I get to something like “Time’s carbon-based biped of the sidereal year,” I always know who wrote it.

  12. “Bernanke Did Not Get a Single Thing Right.”

    Didn’t refinancing his mortgage count for *something*?

  13. Bernanke better take this Timmy Boy with him..…..7C20100108

  14. cavenaughs use of language is sophomoric creative writing 099. Get real schlemeil.

    1. Well, to each his own. I like his playful style.

  15. require, used tire/

  16. I can think of one thing he got right: he admitted that the Fed had caused the first great depression.

    He was of course, completely out to lunch about how the fed had caused the depression, so I’d give him half a point.


    1. Which was probably the cause of the massive over reaction during this fiasco. The old, we didn’t stimulate enough argument. Which hinges on the it would have been worse if we did nothing argument.

  17. He let Lehman fail. So that’s one thing.

    1. *Subject to whether you can count not doing your usual terrible things as doing something right.

    2. Why not let Lehman go. The guys running the show with Bush were GS grads. Of course they want to get rid of competition.

      I try hard to not don the tinfoil hat. But it’s hard to ignore the GS relationships in government and the fact LEH was allowed to implode while GS got 100% on the dollar for CDS, it all adds up to neatly.

      1. If I was President, I would allow no one from GS to work anywhere near the government. I wouldn’t trust a former GS janitor to clean up at the White House.

        1. …and that’s one reason you won’t ever be president. As m’man Hayek said, the worst always rise to the top.

        2. That’s probably because you don’t view the office of the President as a clearinghouse for graft and kickbacks for your cronies.

  18. I’m not a great admirer of Ben Bernanke — he’s supposed to be a scholar of teh Great Depression, but apparently doesn’t take into account the real estate boom of the 20’s, and subsequent bust, as important factors — but I wouldn’t blame him too much. The real estate bubble of 90’s-00’s was raising prices to unsustainable levels, so there was going to be a crash sooner or later, whoever was Fed Chairman. Low interest rates contributed; low interest rates mean that land with an annual rental value of x sells for a larger multiple of x, and thus contribute to speculative bubbles; but by the time Bernanke took over, most of the damage was done. Sharply raising interest rates could have given us a bust then, instead of a year or two later, which would not necessarily have been an improvement.

  19. Let’s blame Greenspan, first. Then we can blame Wilson, for signing the Federal Reserve Act. THEN we can blame Bernanke, for being such an ignorant, economics illiterate fool.

  20. “…every soup line in every town in every state.”

    Ughh. The gubmint is spewing out extended unemployment checks, not soup.

  21. “As surely as Earth rests at the center of a finite series of interlocking crystalline polyhedrons”

    Ah, Tim, the idea of the interlocking polyhedrons was Kepler’s, and it was the Sun, not the Earth, that was at the center in his model.

  22. “within the compass of a benevolent prime mover”

    And the “prime mover” idea was Aristotle’s, and their was no attribution of “benevolence” on his part to that prime mover.

    Ah, but we all know the entire past history of thought is just a goulash of falsehoods until we moderns miraculously got it right, so what does it really matter what any of the ancient fuckers really said?

  23. Oops, “and there was no”!

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