Is the Ben Bernank Stupid Like a Fox?


Jeffrey Rogers Hummel can win a staredown contest with a cobra.

The Independent Institute's Jeffrey Rogers Hummel says Quantitative Easing 2 may be a ruse.

In an email to Robert Wenzel, the San Jose State economics professor and sometime advocate of defaulting on the national debt looks at Fed Chairman Ben Bernanke's claim that he is not engaging in quantitative easing at all. Hummel concludes that Bernanke in his wooly way may be telling the truth:

If you look at the Fed's balance sheet, over the two weeks since the FOMC meeting, it has acquired about $30 billion of additional Treasuries. But that has been offset by a $13 billion fall in its holdings of mortgage-backed securities plus more modest declines in other assets including foreign currencies and Maiden Lane, so that there has been almost no net effect on the balance sheet or the monetary base.

And now Bernanke denies that the term QE applies. As I argue in my "Bernanke vs. Friedman" paper, Bernanke's first alleged quantitative easing turned out to be no such thing, given that the Fed expanded its balance sheet (and the base) by explicitly borrowing a big chunk of the money and implicitly borrowing the remainder through paying interest on reserves. Bernanke appears to be attempting something similar again–centrally allocating credit and manipulating the structure of interest rates WITHOUT affecting the money stock.

So why hasn't he been more straight-forward about this? One, because he wants to increase inflationary expectations, and all the talk about QE2 will help do that without any actual QE. Two….he is really trying to induce more private lending by banks.

Yes, it could all blow up in his face. But right now, I don't see much danger of inflation.

Full article.

A goal of increasing "inflationary expectations" could go a long way toward explaining the Fed's curious policy of paying interest on reserves that are already at record high levels. But this seems to be a policy of limited usefulness, as the lack of bank lending and anemic velocity of money indicate.

Elsewhere, University of Oregon economics professor Mark Thoma makes the case that QE2 will probably not cause inflation, and probably won't do much to spur lending or economic activity either.

I don't know why there is so much confidence that price inflation is not already happening. If you survey countries that are pegged to or heavily dependent on the dollar, you'll see that quite a few of them are experiencing substantial inflation. A double secret WalMart survey says prices in the good ol' U.S.A. have been headed up for most of this year. I know I'm paying substantially more for food and gas than I was a year ago. Then again, I live in a place where people pay a million dollars for houses on 1,200-square-foot lots. And anyway food and gas are excluded from most of the fancy measures of dollar devaluation that as far as I can see are all designed to reach a careful conclusion: There's no inflation; you're just paying more for everything.

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  1. I don’t know why there is so much confidence that price inflation is not already happening.

    Maybe because of how “inflation” is defined. Hummel may have a point that the current easing by the Fed is NOT necessarily inflationary; however, that does not mean the PREVIOUS “easings” were not, either: The increase in consumer prices due to increases in the money supply will always be a lagging phenomenon, so we’re currently seeing the effects of the previous inflation.

  2. Bart: Gee Homer, you sure suck tonight.
    Homer: Suck like a fox!

    Also, I think there’s an “e” at the end of Ben Bernank’s name, unless his name has been devalued already.

    1. …or unless that was a deliberate reference I missed.

      1. It was. You are officially out of the loop.

      2. …which it was.

      3. “the bernank” explained here:

        1. Thx, guys.

        2. better than the iphone version…crying here.

        3. Its always good to look at what the government printing presses has been doing.

          1. That’s the blood alcohol level after HOW many Four Lokos?

    2. I thought we called him “The Barnanke” now?

  3. Everyone knows that the San Jose State School of Economics is a party school of economics.

  4. So why hasn’t he been more straight-forward about this?

    Some people (that is to say, I) think he is still desperately trying to clean up the mess made by his predecessor. He would just as soon keep it on the Q T.

    Speaking of which, how much of Teh Greatest Economic Collapse, et c can be traced to the dual mandate? If Greenspan had kept his eye on the fucking ball, and concentrated on price stability and the soundness of the dollar, we might not have seen subjected to quite so much bubble blowing.

  5. “Been” subjected

    stupid keyboard

  6. I was wondering what ever happened to Keir Dullea. Now I know.

    1. I’m still very enthusiastic about the mission, Ben.

  7. The Independent Institute’s

    Isn’t that an oxymoron? How can one be an independent and an institute at the same time? “An Institute Of One” perhaps? Sounds almost as stupid as the Army commercials.

    Or maybe I’m just cranky cause I’m all alone this Thanksgiving.

    1. Nothing a who-ore, some alcohol, and sundry intoxicants can’t take care of.

  8. A double secret WalMart survey says prices in the good ol’ U.S.A. have been headed up for most of this year. I know I’m paying substantially more for food and gas than I was a year ago.

    Shut UP Palin you WINGNUT! Calling yourself “Tim” now? I’m so TIRED of your CRAZY LIES!! DIE DIE DIE!!!

    1. I want whatever you’re having.


        1. What you are experiencing right now is cognitive dissonance. Sure Bristol doesn’t deserve it, but that is not why you are angry. Dancing With The Stars has revealed to you the futility of egalitarian democracy. No reason to shoot your TV out and hold the cops at bay for several hours. Just put the gun down, and come out with your hands up. The Obama Dream is over. Let it go.

  9. And, whatever you do, boys and girls, don’t forget: The Federal Reserve is independent.

    Immune to short term political considerations.

    Completely immune.

    And impervious, too.

    1. I’m also told it’s run by top people.

      Top. People.

      1. So The Ben Bernank is a gay man who likes being a pitcher?

      2. If you’re going to quote a movie, at least get the quote right: it’s “top men”.

  10. Is Bernanke talking his book?


    If I bought $1.2 trillion of MBS I might want to boost long-bond
    Treasuries too.

    But in any case inflation is dead. These spikes in cotton and corn don’t mean shit when energy prices are well off Bushy-boy Enron loophole jump-start highs.

    Good post, Cavanaugh.

  11. They are trying to cause the so called good inflation (stocks and houses) instead of the so called bad inflation (consumer items).

    To bad you can’t control where inflation ends up.

    1. It’s working with the stocks.

      For now.

  12. So, does this mean some of the buffoons who were coming here and defending this crap in the comment section–were all being buffoons twice over?

    ’cause what I’m reading from all this is that Bernanke doesn’t even believe his own bullshit.

  13. And anyway food and gas are excluded from most of the fancy measures of dollar devaluation that as far as I can see are all designed to reach a careful conclusion: There’s no inflation; you’re just paying more for everything.

    This is what I’ve been kind of suspicious of. I’ve long thought that the way were were going to get out of our debt burden was going to be to inflate our way out of it. But with Social Security COLAs tied to inflation, that creates a problem. You have to either freeze the COLAs or revise the formula, and that will create all sorts of hassles in congress.

    What I suspect is that they are lying about the inflation rate somehow so they don’t have to give those COLAs, so we can inflate our way out of the social security debt.

    It’s not, all things considered, a bad approach. It’s effectively a backhanded way of decreasing social security benefits for current retirees while pretneding your not.

    That and it also reduces every level of governments obligations to everything that is pegged to inflation. Labor unions, and what not. Also the minimum wage, which was recently increased.

    Of course, it also reduces the value of everyone’s savings, so there is that.

    1. Pure stupidity.

      How can Big Gov “inflate/COLA their way out of this mess when they must PAY HIGHER INTEREST RATES on existing debt?

      Interest on the Bushpigs debt is running close to $150 billion a year now.

      Like I tell the idiot Paulian goldbugs – inflation is dead. I will short GLD again next year.

      1. ? How do interest rates go up for existing debt?

        And how is that affected by inflation, or rather lying about inflation.

      2. Interest on the Bushpigs Obamessiah’s debt is running close to $150 billion a year now


    2. Go look at the CRB index…

      Look at the TIPS spread…

      That’s what the market says about inflation.

      Market signals aren’t always right about predicting the future–but they’re the very best predictor we have. People can still argue there’s a bond or TIPS bubble or a commodities bubble, but they can’t say there isn’t any evidence for inflation if the TIPS spread is widening and the CRB index is climbing.

      Possible to lie about COLA? Sure, I guess, but why would we go by that?

  14. I am so sick of all their macho head games.

  15. I want whatever you’re having.

    Don’t eat the brown guacamole, dude.


  17. Somewhat relevant: the M1 & M2 money supply, according to the Federal Reserve. M1 is up 17% since 11/08, M2 is up 8% since 11/08.

    1. Both include the excess reserve held by banks.

      Subtract those out to get actual money in the economy and the results are quite different.

  18. Here’s how the government can lie about inflation …

    1. When gas prices go up, change the formula so it doesn’t include gas.
    2. Wait for gas prices to fall and food prices to rise, then change the formula again, so that includes gas but not food.
    3. Repeat as necessary.
    4. Use appropriate variations as conditions dictate.

    1. 5. Use bullshit substitutions to hide actual price increases

      6. Pretend that products are better and therefor don’t cost more even though they do.

  19. 5. Don’t include leading price inflation indicators in the commodities market in the trend like cotton which has risen in price 0 over the previous year.

    1. Okay squirrel, I know it said one hundred percent in numeral form when I scanned through it before posting.

      1. We own you.

        1. Really? Well, I hope you are getting your money’s worth.

  20. The Fed has no “balance”. The “balance” is just an elaborate ruse to convince journalism majors that the Fed doesn’t just exist to print money to support the liberal welfare state.

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