Richard Alford: On Grading the Bernanke Fed

By Richard Alford, a former New York Fed economist. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side

As the end of Bernanke’s tenure as Fed Chairman approaches, observers will offer appraisals of his performance. However appraising or grading any Fed Chairman, or perhaps more accurately the Fed during a Chairmanship, is fraught with difficulties.

Model-based evaluations cannot serve as an objective means for assigning a grade. Macro-economic model-based grading is either a comparison of the realized outcome to a model-based hypothetical and/or a comparison of hypothetical outcomes. The results are largely determined by the choice of models. Different models and/or different parameters give rise to different results and are reflections of judgments/assumptions made by the person specifying the model or parameters to be employed. The choice of model will largely determine the grade. Furthermore, model-based evaluations omit dimensions of Fed performance, e.g., financial regulation.

There is a solution that removes biases inherent in the choice of a model. The Bernanke Fed can be graded based on a comparison of Bernanke’s expressed understanding of, and goals set for, Fed policy and the economy on the one hand, and the actual evolution of the economy and Fed policy on the other. The understanding and goals to be employed are those that Bernanke set out for the Fed in a speech in November of 2002, near the end of his first year on the Board of Governors.

The speech, titled “Deflation: Making Sure It Doesn’t Happen Here,” was prompted by concerns that the US might experience a Japan-style “lost decade.” While the title highlighted deflation, Bernanke made clear that the ultimate concern of policymakers was the real economy:

…this concern…is brought home to us whenever we read newspaper reports about Japan, where what seems to be a relatively moderate deflation–a decline in consumer prices of about 1 percent per year–has been associated with years of painfully slow growth, rising joblessness…

In the speech, Bernanke expressed confidence that the US would not experience a prolonged Japan-like bout of economic ill health and provided a number of reasons why. From the introductory paragraphs:

So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons.

The first is the resilience and structural stability of the U.S. economy itself. Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow… A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape. Also helpful is that inflation has recently been not only low but quite stable, with one result being that inflation expectations seem well anchored.

The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself…I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.”

These introductory paragraphs provide the yardstick:

1. Did the Bernanke Fed succeed in achieving the goals he set out for it?

2. Did Bernanke correctly assess the underlying health and resiliency of both the financial system and the real economy as well the robustness of the regulatory system?

3. Did Bernanke accurately estimate the effectiveness of monetary policy?

Unfortunately, while the Fed’s monetary policy hit its chosen intermediate target (price stability), it failed to secure the ultimate targets, i.e., trend growth with full employment, and to insure financial stability. Deflation was avoided, but all the other ills that have beset Japan have been and/or are present in the US economy: a financial crisis, a recession, sluggish growth, and prolonged elevated rates of unemployment.

Why/how could this have occurred? Bernanke assured listeners in 2002 that a serious financial crisis would not happen:

…the Fed should take most seriously–as of course it does–its responsibility to ensure financial stability in the economy… The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly.

However, both the opening paragraphs of the speech and the surprise Bernanke expressed in 2007 at the financial crisis and recession imply that he misread the health of the financial and household sectors as well the robustness of the financial regulatory system.

One would think that the Fed, who’s Chairman believed that it would take its responsibility to ensure financial stability seriously, would have at least periodically reviewed the robustness of the financial and regulatory systems. However, the Fed never made the effort required to determine the true state of the financial and regulatory systems. This view is supported by the Fed’s use of the self-serving “no one saw it coming” defense, when despite their responsibilities they failed to see it coming.

Unfortunately, the financial system was becoming progressively more fragile in the years before the crisis. During this period, unsustainably high prices for real estate and financial assets were supported by historically high levels of leverage and maturity mismatches as the players in the asset markets reached for yield. These developments reflected both the low-for-long interest rate policy stance as well the failure of regulators to exercise their responsibilities.

This sin of omission on the part of the Fed and financial regulators reflected an implicit decision to ignore lessons learned about regulation and financial stability in the then recent past. In 1997, the FDIC held a symposium/postmortem on the crises and bank failures of the 1980s and early 1990s. The papers and presentations were published under the title “History of the Eighties – Lessons for the Future.”

In a presentation titled “Lessons of the 1980s: What Does the Evidence Show?” in Volume II of the “History,” William Seidman drew the following lessons:

“First, every major developed nation learned that it is possible to have serious banking problems despite a great variety of regulatory structures, deposit insurance systems and banking organizations… No magic formula for supervision or financed system can be identified from the difficulties of the last decade.

Thus, lesson number one must be that there is no “magic bullet” system that will ensure banking safety and soundness…

As Adam Smith recognized, banking is different. Thus, lesson number two must be that financial systems are not, and probably never will be totally free market systems….Bank regulation can limit the scope and cost of bank failures but is unlikely to prevent failures that have systemic causes. The rise in the number of bank failures in the1980s had many causes that were beyond the regulators power to influence or offset. These included broad economic and financial market changes, ill-considered government policy actions, and structural weaknesses. However, if significant new structural weaknesses or serious economic problems are allowed to develop in the future, bank regulation alone will not be able to prevent a major increase in the number of bank failures….

… But more than anything else, real estate lending became the fashion, the “new” banking idea of the times…

Everywhere from Finland to Sweden to England to the United States to Japan to Australia, excessive real estate loans created the core of the banking problem. Some have maintained that government subsidies such as deposit insurance created a moral hazard, which caused institutions to behave in a non-market manner and therefore to take risks that they would not have taken without government subsidy. However, in looking around the world, the risks were taken without regard to whether the deposit insurance system was comprehensive as in the United States, minimal as in the UK, moderate as in Japan, or essentially nonexistent as in New Zealand…

The critical catalyst causing the institutional disruption around the world can be almost uniformly described by three words: real estate loans.

Chapter 1 in Volume I of the “History” is titled “Crises of the 1980s and Early 1990s.” Among the conclusions presented in this chapter are:

…bank failures were partly shaped by their own distinct circumstances…certain common elements were present:

1. Each followed a period of rapid expansion; in most cases, cyclical forces were accentuated by external factors. (Ed.: the savings glut in Asia?)

2. In all four recessions, speculative activity was evident…Expert opinion often gave support to overly optimistic expectations.

3. In all four cases there were wide swings in real estate activity.

Chapter 3 of Volume I of the “History” was titled “Commercial Real Estate and the Banking Crisis of the 1980s.” The final paragraphs of this chapter included a summary of the causes for this crisis:

… Generally, bank underwriting standards were loosened, often unchecked either by the real estate appraisal system or by supervisory restraints. In addition, overly optimistic appraisals, together with the relaxation of debt coverage, the reduction in the maximum loan-to-value ratios, and the loosening of other underwriting constraints, often meant that borrowers frequently had little or no equity at stake and in some cases lenders bore most or all of the risk.

Chapter 4 of Volume I of the “History” was titled: The Savings and Loan Crisis. The lessons for future regulators were summarized as:

The regulatory lessons of the S&L disaster are many. First and foremost is the need for strong and effective supervision of insured depository institutions, particularly if they are given new or expanded powers or are experiencing rapid growth. Second, this can be accomplished only if the industry does not have too much influence over its regulators… In this regard, the bank regulatory agencies need to remain politically independent.

Volcker was also a participant in the symposium presented in Volume II of the History. He focused on the dynamic nature of the financial system and the need for the regulatory system to evolve along with it:

What strikes me in reading the material for the 1980s is how much has changed in the 1990s and is in the process of change. I have no doubt that if we had these papers somehow available at the beginnings of the 1980s – that if we could have absorbed the lessons of the 1980s before the 1980s took place – we would not have many of the problems of the 1980s. But I’m not sure I could say the same thing about the 1990s because so much has change. Would the same lessons be adequate for, say, 2007.

A comparison of the views expressed in the FDIC review of 1997 on the one hand and the reaction of policymakers to Rajan’s speech in Jackson Hole in 2005, as well as to Shiller and others who reported risks and imbalances in the financial system and real economies is enlightening. It implies that in a just a few years the policymakers had forgotten the important, painful, and costly lessons of the 1980s and 90s. It also highlights the failure to update the regulatory system in light of the changes in the economic and interest rate climate and the evolution of financial institutions, markets and instruments. Lessons forgotten included:

1. The possibility of a real estate-based speculative bubble in the housing market was dismissed even though real estate bubbles had existed in the US and abroad in the recent past and the US had experienced the NASDQ bubble of 1996-2001.

2. The real estate dimension of the financial crisis of 2007, like the crises of the 1980s and 90s, was driven in part by a failure of private regulation as reflected in questionable third-party assessments of the value of underlying assets, declining underwriting standards, higher loan-to-value ratios, greater levels of leverage and larger maturity mismatches. But the Fed, as regulator and implementer of interest rate policy, had acted as if private regulation was sufficient. Kohn dubbed this position on the role of regulation as the “Greenspan Doctrine” at Jackson Hole in 2005.

3. Both optimism and rapid growth were rampant prior to the crisis of 2007. They were concentrated in the latest financial “fashion”, i.e., widespread use of derivatives and new structured products, as well as off-balance sheet entities to increase leverage and the risk profile of financial firms.

4. Price stability was viewed as a magic bullet. Financial stability was viewed as the sole province of regulation and supervision, which was in turn dismissed as sapping efficiency and unnecessary if price stability was achieved.

5. The consensus view as of the early 1990s was that it was better and cheaper to avoid crises and bank failures than to clean up afterwards. This is reflected in the FDIC Improvement Act of 1991. The Act mandated that the regulators pursue “prompt corrective actions” before a depository institution became capital impaired. In contrast, during the run-up to the latest crisis, the Fed publicly hewed to the position that it is better to clean up after a crisis than take action to prevent it, even though at the same time saying it was better to prevent deflation than to have to react to it.

Bernanke also overestimated the effectiveness of monetary policy. In the 2002 speech, Bernanke argued that rapid cuts in interest rates could prevent a Japan-like outcome in the US. He cited model-based policy simulations that indicated that Japan would have avoided the lost decade if policymakers had moved more quickly to provide monetary stimulus. More specifically, the policy simulations indicated that the lost decade could have been avoided if the BOJ had reduced the policy rate another 200 basis points at any point before 1995.

There is no indication that the Fed was constrained from easing as quickly as Bernanke and the FOMC thought desirable when the US housing market rolled over. The Fed funds rate target was reduced from 5.25% to 2.00% in seven moves (two of 75 basis points) between August of 2006 and April of 2008. The target rate was reduced from 2.00% to a range between 0.00% and 0.25% in the fall and early winter of 2008.

However, despite this rapid and presumably unconstrained reduction in the Fed funds target, the FOMC has continued to provide additional “stimulus” in response to the continued existence of a sizable output gap and weakness in the labor market. This resorting to unconventional policy and numerous de novo special facilities and programs suggests that Bernanke was overly optimistic about the effectiveness of monetary policy in 2002 when he said:

…that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments…

In short, Japan’s deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has.

The lingering problems in the labor market and output below potential despite the continuance of unprecedented stimulus imply that Bernanke had read the economy and financial markets as robust when they were in fact fragile, and overestimated the effectiveness of monetary policy. This divergence between the actual state of economic and financial conditions and the assumed states as indicated by Bernanke imply that the chosen policy paths were inappropriate.

It is also interesting to note that in the same speech Bernanke argued that a recovery in Japan required structural reforms:

I believe that, when all is said and done, the failure to end deflation in Japan does not necessarily reflect any technical infeasibility of achieving that goal… As the Japanese certainly realize, both restoring banks and corporations to solvency and implementing significant structural change are necessary for Japan’s long-run economic health.

However, he has not suggested any remedies other than counter-cyclical monetary and fiscal policies in the US case, even as he admitted that monetary policy is no panacea.

The grading procedure used in this effort cannot provide a definitive final grade. The near-term path of the economy is in question. Furthermore, the grade assigned must also reflect the relative importance attached by the observer to price stability, deviations from trend growth with full employment, financial stability, etc. Consequently, the grades assigned will vary from observer to observer.

However, any grading methodology should reflect Bernanke’s and the Fed’s performance in achieving the goals set out, as well as those specified in its legal mandate. It would not be proper to grade Bernanke on one criterion, e.g., price stability, alone. Additionally, it would not be proper to grade Bernanke or the Fed’s performance based on a sub-period of his tenure in office, i.e., the response to the crisis.

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  1. Hugh

    As Yves I believe wrote a book on, it wasn’t the real estate bubble but the derivatives bubble written on top of the latter part of the real estate bubble that blew up the world financial system. Bernanke was a serial failure.

    He bought into the Greenspan brand of laissez faire, that regulation impeded markets and that they would self-correct on their own. He never saw the housing bubble coming. Even after it burst in August of 2007, he quickly wrote off its effects and instead of bringing the financial system to heel, he continued to embrace a hands off approach, except for limited, ad hoc interventions to specific problems. This was what he thought Bear Stearns going under in March 2008 was and not the general wake up call it should have been. This was dithering on an epic scale. On September 5, 2008, the government announced it was putting Fannie and Freddie into receivership. The wheels were coming off of the financial system. The next weekend, of the 13th and 14th, Bernanke, Paulson, and Geithner made their fateful decision to save AIG (and along with it Goldman) and abandon Lehman. When Lehman blew up on the Monday the 15th, Bernanke finally took action, which was to release trillions to the same actors guilty of the largest financial frauds in human history. The Fed’s actions dwarfed those of the TARP. And in return for all this largesse and saving their hides, Bernanke demanded exactly nothing, no reform, no greater Fed regulation.

    And he didn’t just open up the monetary floodgates to weather the immediate crisis, he went on via QE and ZIRP to promote a new round of bubbles in stocks and commodities, which didn’t help ordinary Americans at all but did allow the 1% to make good all their losses and then some. That’s where we are now. If QE is withdrawn, the bubbles burst, and if it is continued, it simply makes the inevitable burst that much bigger.

    From the viewpoint of most Americans, Bernanke was and is a stupendous failure, disaster, even catastrophe. But if you look at this from the kleptocratic perspective, he did great. He left a system geared to looting alone and when it crashed, he bailed it out, and set it back up so it could loot itself into an even bigger crash, but making a lot of money for the rich in the here and now. So yes, Bernanke saved the financial system, which is to say he saved kleptocracy. And that is how Bernanke should be seen and judged as one of the great defenders and promoters of kleptocracy.

    1. John Jones

      Hugh I am curious what you would have done if you were in Bernanke’s seat?

      What would you have put in place to get power away from
      the kleptocrats?

      I guess as you say an inevitable bubble has been created
      and when does burst I wonder how the elites will push through the same sort of action.

        1. Alejandro


          The thing with bubbles is that they eventually POP.

          What you thought was “wealth” is really NOT.

          That on which your heart was SET,

          when the smoke clears is really DEBT.

          This time the house can’t cover the BET.

          So the question is how do we RE-SET?

          Clear your eyes so you can see,

          Our only option is jubilee.

          Not the TTIP nor the TEE PEE PEE.

      1. profoundlogic

        What would you have done if you were in Bernanke’s seat?

        Get out of the chair and exit the building, schedule demolition for the following Monday.

      2. from Mexico

        John Jones says:

        What would you have put in place to get power away from the kleptocrats?

        Why should we believe that Bernanke, or Greenspan, or especially Volcker, even wanted to get power away from the kleptocrats?

        This is a premise which underlies Alford’s entire post. And it is patently, demonstrably false.

        The Fed is now almost 100 years old, and what has it produced? It has produced a century of uninterupted serial failures. But as Hugh points out, “failures” that somehow, as if by magic, always end up bennefiting the kleptocrats. Why do you believe that is so?

        Face it, rule by the scientist kings has been a collosal failure. As Reinhold Niebuhr was want to remind us, the heart of man is obviously not OK, not even the heart of the technocrats and scientist kings.

        But Alford continues propagating this fiction, and in complete defiance of our experiences over the past hundred years.

        That is what was so refreshing about the wonderful Russel Brand interview which diptherio linked yesterday:

        When Brand was talking about the evil in his own heart, he very much reminded me of something Niebuhr wrote in “The children of light and the children of darknesss”:

        Our democratic civilization has been built, not by children of darkness, but by foolish children of light….

        It must be understood that the children of light are foolish not merely because they underestimate the power of self-interest among the children of darkness. They underestimate this powr among themselves.

        1. AndyB

          The Fed doesn;t have to worry about the kleptocrats; it and its European owners own them, lock stock and barrel

      3. Jackrabbit

        This is a loaded question.

        Economists are conformists by nature. To kleptos, this is their most endearing quality. The question imagines that Hugh, or someone that is willing to buck the system, might actually be given a chance to assume such power.

        If by some miracle Hugh, or someone with similar views, did manage to become Fed chair, it seems fairly certain that they would be quickly undermined and side-tracked before it could be fully implemented, because the Fed is a key bulwark of the current regime.

        I imagine that Hugh, or someone with similar views, would have done much less fellating and more regulating:

        * Instituted tough(er) oversight
        The neo-lib view of Government serving business would be replaced with the traditional view of government serving society. Banks are still very uncapitalized and Dodd-Frank “reforms” assume ‘bail-ins’ as as a financial resource.

        * Spoken out much more forcibly
        inequality, need for fiscal stimulus, etc. (silence is acceptance)

        * NOT allowed the Fed to be used politically
        Fed riding to the rescue = political space for extending, then keeping most of, the Bush tax cuts

        * Extracted concessions for back-door bailouts
        Record Wall Street bonuses? WTF?

        * Generally, start with a better understanding of the post-2008 economy and how to fix it
        Bernanke seems to suffer an extreme case of ‘It is difficult to get a man to understand something, when his salary depends upon his not understanding it’. He still doesn’t seem to get it. His knowledge of the Depression has allowed him to soften the blow but the extraordinary measures that he is lauded for have served conventional and short-sighted purposes. Blowing a new real estate bubble was – not surprisingly – MUCH harder than he thought it would be. Now he leaves the Fed/economy in a precarious position.

    2. profoundlogic

      Great points. It’s unfortunate that Bernanke will likely not receive the grade he really deserves before his tenure has ended, but that’s just another flaw in the system he’s operating in. Just like any good politician, Bernanke will leave the disastrous consequences for someone else to deal with, and when he looks back on all the mistakes he made, he’ll claim that he didn’t see the problems staring him in the face.

      The real question is how long it will take the American people to wake up and stop these ass clowns from pissing in our cistern?

    3. craazyboy

      I don’t really see any need to formally grade Ben – when projectile vomit will suffice.

      But Alford states the high point is a stable Chinese Price Index – hooray!

      Not so good is we have completed Lost Decade I, and still counting.

      The Big Awe Shucks to come is when the bubble blowing stops, or pops, and everyone’s artificial “wealth effect” disappears again.

      We’ll have to watch out for the smart money “search for bagholders” and if the smart money can figure out anywhere to hide.

      1. craazyboy

        Also, the real estate bubble was a two edged sword – securitization and derivatives look like the straw that broke the back of a fragile financial system, but it also consumed a too large portion of consumer income. Furthermore people that sat tight and had equity grow, many took it out as home equity loans and spent it. So we had a bubble in consumer spending – then the lack of spending capability now – which some have called a “balance sheet recession.”

        Which means Ben blew it as both a financial economist and a Keynesian economist. But back to Princeton with him.

  2. ambrit

    Mentioned in passing above is regulatory capture. Hundreds of prosecutions followed the S&L debacle. How many have followed the ’08 crash; three, five? The Fed is not alone in its’ malfeasance.
    The coming Re-Crash will do a lot to destabilize the edifice of Kleptocracy, effecting as it does a public already weakened by the ’08 event. We are rapidly moving out of the realm of economics and into that of the social sciences.

  3. joebhed

    Given that The Bernank dealt pretty well with the failed system, his para-mark should have been prevention.
    There was never a deregulation Bill in the Cong. that the Fed chief should not have weighed in on, with an explanation that full-employment and stable purchasing power were of primary importance.
    His sin was of omission, of NOT being there, taking defensive, protectionist action in favor of The Restofus, who live, work and spend in the real economy.
    Thinking on his feet in the face of adversity, he earns a B+.
    For vision and planning, an F-.

  4. susan the other

    The Fed will let all the MBS fall off the books. If they sold them back into the market it would crash the market into a crater. Also they seem to be telling us that 6% unemployment is the Fed target, which will take “several years” to achieve at this snail’s pace of job creation. If they taper treasuries interest rates will go up and the Fed’s dearest friends, the owners of the Fed, will go instantly insolvent, right? So will the federal government because national debt will go parabolic. And the biggest Catch-22 is that the Fed’s dual mandate is the bedrock of kleptocracy – maintaining a low inflation rate (aka low wage inflation to insure price stability). What the 6% solution actually does is create big profits for the corporatocracy at the same time it destroys the economy. And over time everyone panics to find a scrap of profit. It will take something like martial law to set things right. Strict regulations to keep things functioning while 25 million jobs are created, along with trillions more dollars to fund the creation of a real economy. Obama thinks he can avoid this by TAFTA and TPP? Right, we’re all going to trade our way out of this mess. I’m surprised they haven’t written up derivatives on Fukushima.

    1. anon y'mouse

      that 6% creates all kinds of jobs for a percentage of the rest within the 94%. think of the industries we have to ‘serve’ the poor. everyone involved in charity work within the U.S., probably at least half within the prison system, most of the social services sector and at least some of the education sector are employed simply because there is a lowest class being victimized by the financial system status quo. because we as a society are thankfully too humane to let those people simply die in the streets, it keeps some of us employed scrambling around trying to coddle together the resources to address their issues and keep them surviving. how many grants have been given for just this alone?

      my city has a whole section of town dedicated to providing services to the homeless (I don’t resent this, btw but isn’t this in econ. speak ‘dead loss’?). a few years ago one block tore down an old fast food franchise to build a modern, multiple story building which looks just like an apartment building to provide more services (still don’t resent this—they need services and homes just as any of us do). someone, including the construction industry, is using the large numbers of homeless here to make money off of. yes, we’ll always have some homeless (gypsy mentality?) but couldn’t this be put to better use somehow? isn’t this the social equivalent of building drones and selling arms and bombing people and the MIC calling this “profit”?

      sorry, just some rambling thoughts. I simply wonder how much of our ‘real economy’ is being wasted in like fashion, instead of lifting people up and allowing them to live productively. i’m sure social services people do not see themselves as ‘parasites of the poor’ (neither do I, really) but an ever-expanding number of them does guarantee a bit of job safety. same could be said of cops. we are at record lows in crime, but if 6-12% of a growing population is going to be kept perpetually unemployed and the rest of us scrambling for miserable jobs that don’t quite cover the bills, I doubt this will last.

  5. Knut

    I have always thought that Bernanke is a mediocre economist–like Mankiw but without the bagge of ambition. He is typical of the cohort that passed theough the major departments at the end of the 70s and the beginning of the 80s when the changing of the guard in graduate macro took place. He understood abd believed the neoclassical maco model, made his academic reputation in it, interpreted all the facts he deemed relevant through it (recall his theory that the internet bubble was due to a global savings glut), and genetally displayed and continues to display the fundamental lack of curiosity about economic phenomena typical of his class of economist. Not only did he not look ouside the box, he didn’t even knowhe was in one. That is still true.

    I don’t believe any other economist wih the exception of Ned Gramlich could have done any beyter given the education they are getting and the irresistible pressure to confoem. I’m beginning to think a businessman with experience, judgment, and commn sense plus balls could and would do a better job. Best of luck to Janet Yellen if she gets in. She’s the last of the pre-Bernanke group still in action, and like Gramlich had the inestimable good luck to be trained by Jim Tobin.

  6. craazyman

    I’d Give Him Two “A”s

    He gets an A for congressional testimony. You might think he was on 1 mg or even 2 mg of Xanax but I think it was actually intellectual self-confidence and a certain erudite and pithy smugness that frankly I sort of applaud. I liked the one about “the economy would tank”. That shows me he’s my kind of guy after a few beers.

    When you’re Fed Chairman you probbly don’t have time to watch TV or you would have seen commercials that said “When your bank says NO, Champion says YES”. You migth have also seen ads for how-to courses in getting rich quick flipping condos. Then you might have known some folks who really did! Then you might have heard about people standing in line to buy flipped condos. Then you might have gotten so excited you said to yourself “Why can’t I flip condos too?” But if you’re a Fed economist you’re probly too busy studying data from the 1950s for patterns nobody else can see using equations nobody can understand.

    When you drove home from the office, you might have seen folks driving a leased brand new Ford pickup truck with 6 wheels and a raised bed on their way to flip condos. But you don’t live in the sticks if you’re a Fed economist. And you don’t know folks who drive pickup trucks, probably.

    You wouldn’t have seen any of this if youre busy doing macroeconomic research using data from the 20th century. That’s what a Fed person does. They don’t watch TV or flip condos or drive pickups to rodeos. So how would they have seen anything coming?

    He gets an A for 20th century data analysis too.

    That’s two “A”s. It’s a high bar for Ms. Yellen but from the looks of things I bet she’ll be just as good.

    1. anon y'mouse

      “my kind of guy” implies beer-can rather than ivory tower analysis.

      if that were true, he’d be more familiar with pickup-truck mentality.

      hilarious as ever, craazy.

  7. jfleni

    The whole FED system is a carefully contrived, non constitutional means, of putting bankers and plutocrats (and many of their deranged “economists”) in charge of the economy bypassing the President, the Cabinet, all impeachable and responsible, and the Congress.

    We the people have created this monster, which has mostly failed in the 80 of so years of its existence. The remedy is obvious.

  8. washunate

    “The understanding and goals to be employed are those that Bernanke set out for the Fed in a speech in November of 2002…”

    I would disagree with that assessment. A better understanding was explained by Alan Greenspan – fraud doesn’t happen, Eric Holder – Too Big To Jail, and of course the President of the United States – Look Forward, Not Backward.

    Bernanke did an excellent job holding the system together as concentration of wealth and power approaches its terminal stage.

  9. Fiver

    What normal people would view as criminal negligence at best, and conspiracy to defraud the US of tens of trillions at worst, this fellow and his crime-free Fed Sandman trust-us-dust would have the public dozing off to dream of a smarter Fed, not of good men doing better economics without a Fed.

    Bernanke gets a Go Directly To Jail

    The author gets an F.

  10. Bob

    If monetary policy is so unimportant, then why did the US, with its more extensive monetary policy, weather the crisis far better than Europe?

    If anything, the problem is that the Fed wasn’t aggressive enough. Results would have been better without the silliness that is IOR, and if QE was not bound by quantity: Something like saying that QE would grow every month until NGDP growth was X%, and that it’d only taper off after a certain number of months on target.

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