Should Bernanke Park the Helicopter?

[Draggingtree]

Ludwig von Mises Institute :

Should Bernanke Park the Helicopter?

Mises Daily:Tuesday, March 19, 2013 by Frank Shostak

 

According to Ben Bernanke, pulling back on aggressive policy measures too soon would pose a real risk of damaging a still-fragile recovery.

 

The Fed chief is of the view that, for the purposes of financial stability, a continuation of the central bank’s aggressive stimulus, conducted through purchases of Treasury and mortgage securities, remains the optimal approach.

 

In response to the financial crisis and the deep recession of 2007–09, the Fed not only lowered official rates effectively to zero, but also bought more than $2.5 trillion in assets in an effort to keep long-term rates low.

 

But is it true that a loose monetary stance provides support to economic activity? Furthermore, if this is the case, then why, after such an aggressive lowering of interest rates and massive expansion of the Fed’s balance sheet, does the economic recovery remain fragile?

Needless to say, those who benefit from bubble activities are not going to like this, since the diversion of real wealth to them from wealth generators will slow down or cease all together.

 

A fall in economic activity in this case would in fact be the demise of various bubble activities.

 

Contrary to Bernanke, we can conclude that the continuation of loose monetary policies could only lead to financial instability and prolong the economic crisis.

[Draggingtree]

Bernanke: The Good Engineer?

Mises Daily:Thursday, March 21, 2013 by John P. Cochran

In a Financial Times article, “A good engineer who knows his own limits,” Edward Luce praises Fed Chairman Ben Bernanke for being the adult in the room when it comes to dealing with the current slow recovery from the “Great Recession and for doing so while clearly recognizing the limitation of monetary policy.” He argues that, with the exception of Obama’s 2009 stimulus, only Bernanke and the Fed have worked tirelessly to “keep the US economy afloat.” More recently, per Luce, Bernanke’s efforts have been heroic, while restrained by headwinds he cannot control.

 

The Bernanke-led Fed has, since 2009, “stood alone in its attempts to confront America’s jobs and housing crises—albeit with its limited monetary tool kit.” Since Republicans took control of Congress in 2010, “serious action elsewhere” [more Keynesian stimulus] has been “stymied.” Because of the lack of action elsewhere, Bernanke should be given credit and praise for the actions and statements tied to QE I, II, and Infinity, and the commitment by the Fed to purchase $80 billion a month in Treasury and mortgage-backed securities, as “[f]or the first time in its history, the Fed is taking the full-employment half of its mission seriously. In December Mr. Bernanke broke precedent by pledging to keep zero-bound interest rates until unemployment fell to 6.5 per cent or inflation exceeded 2.5 per cent.”

Roger Garrison, in “Natural Rates of Interest and Sustainable Growth” (pp. 433-35) makes a strong case that the Fed did indeed facilitate both the 2000 “dot com” boom-bust cycle and the more recent housing bubble-led boom-bust cycle. Regarding the Fed’s response, where the Fed acted much like an arsonist, who did not light the fire, but only poured gasoline on a smoldering ember, returns to the scene of the crime in the guise of a hero coming to combat the now raging blaze, Garrison writes:

“it is a triumph of hope over experience to believe that more government spending will help the US today.”

http://mises.org/daily/6386/Bernanke-The-Good-Engineer