The Duplicity of Ben Bernanke

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President Barack
Obama nominated Ben Bernanke to a second term as chairman of the
Federal Reserve System. Barring a rejection by the Senate, Mr. Bernanke
will retain his title as the fourteenth Fed chairman on February
1, 2010.

Consider Mr.
Bernanke’s track record against his stated goals as Fed chairman.
In opposition to his predecessor, Alan Greenspan, Bernanke said
that he would communicate clearly and openly with the investment
community. This, he said, would remove an element of uncertainty
for investors.

However, it
didn’t take long for him to do an about-face on this issue. He learned
that even the smallest utterance could shake markets. Today he embraces
the jargon and ambiguities of his forerunner.

More troubling,
Bernanke has overseen the most comprehensive lending facility ever
undertaken by a central bank. During last year’s crisis, the Treasury
initiated the Troubled Asset Relief Program (TARP) with the approval
of Congress. The $700 billion program was soon dwarfed by a further
$788 billion in loans to the banking system made by the Fed, plus
another $474 billion in lending directed mostly at the purchase
of Fannie Mae and Freddie Mac bonds.

The additional
lending operations in excess of the TARP have thus far been veiled
in secrecy. Mr. Bernanke’s calls for increased transparency have
been completely forgotten. Some recipients of these funds, notably
Citigroup and American International Group (AIG), have admitted
to accepting the Fed loans. Others have been less forthcoming.

This pattern
of concealment caused Bloomberg News to formally file a federal
lawsuit seeking full disclosure of these activities on November
7 of last year. On the same day his nomination for reappointment
was announced, Mr. Bernanke’s Fed was ordered by a federal court
to release the information regarding recipients of its lending operations
in compliance with the Freedom
of Information Act
.

Barack Obama,
whose presidential campaign focused on a more open and transparent
government, seems untroubled by Mr. Bernanke’s repeal of his own
earlier plea for increased transparency.

Bernanke’s
other primary goals included stable prices and moderate long-term
interest rates. A focal point of his 2007
and 2008
opening remarks at the Federal Reserve Bank of Kansas City’s Economic
Symposium, held at Jackson Hole, Wyoming, focused on price-stability
maintenance. His press
release
of August 25 thanking President Obama for his nomination
reiterated his desire "to help provide a solid foundation for
growth and prosperity in an environment of price stability."

And yet the
consumer price index (CPI) at the end of last year was 5 percent
higher than the year before. It was the first time in more than
a decade that the American CPI had increased on this scale. At the
same time as inflation was increasing, Mr.
Bernanke justified keeping the federal-funds rate low, even though
this policy increases inflationary pressures
. Nowhere was the
conflict between Bernanke’s previously sought-after goal of price
stability reconciled with this newfound goal of financial-system
stability.

If we look
to see how Mr. Bernanke fared in keeping monetary inflation under
wraps during the first three years of his term, we find dismal results.
From January 2006 to July of 2009, the monetary base increased from
$795 billion to $1.66 trillion. This amounts to an almost 110% increase
in less than four years. Zimbabwean central-bank governor Gideon
Gono might blush at such a number.

Concerning
the mandate for “moderate medium-term interest rates,” the Bernanke
Fed used every tool at its disposal to keep interest rates ridiculously
low. The result has been an effective federal-funds rate ranging
from 0 to 0.25 percent since last December.

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the rest of the article

August
31, 2009

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