Bernanke Is Terrified of Ron Paul

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Reuters is reporting that at a town hall meeting with soldiers and their families, in Fort Bliss, Texas, Fed Chairman Ben Bernanke said:

I’m not a believer in the Old Testament theory of business cycles. I think that if we can help people, we need to help people.

This comment isn’t in his prepared remarks, so it must have come during the Q&A.

Despite this being an odd metaphor from a guy who, while a teenager, helped roll the Torah scrolls in his local synagogue, you know that the metaphor is aimed at Ron Paul. Bernanke is pushing Austrian Business Cycle Theory (which Ron Paul supports), as a "Pain Theory" of solving the economic crisis, when he says that "we need to help people". He’s implying that something different from the old time economic theories can now be used to "help people" during an economic crisis.

This, I remind you, is coming from a guy who as Chairman of the Federal Reserve crashed the economy and destroyed the housing market, and where, as a result of the crash, roughly 9%, to this day, remain unemployed. Some help he is.

The poor performance of the economy is, of course, the result of past Federal Reserve money printing manipulations that distort the economy. Once the money printing stops, even for a short period, like it did in the summer of 2008, the economy attempts to readjust to a non-manipulated structure. Thus, people who find themselves in jobs that are only the result of the distorted Fed manipulated economy end up unemployed and need to move into jobs that are developing in the non-manipulated economic structure.

The only way the Fed can truly help these people is to stay out of the way and allow the economy to reshape in non-manipulated fashion. This will result in people finding jobs in the non-manipulated economy, which has a much stronger structure and very unlikely to result in an overall general crashes that have become the norm when central banks are created and start to print money.

Bernanke’s "New Testament" is about printing money to hold up the manipulated structure, which benefits the banksters, but also ultimately leads to massive price inflation, which screws most of the non-bankster population.

Thus, Austrian Business Cycle Theory is not about extending pain. It is about ending the madness with as little pain as possible.

As I have written before:

This "pain theory" that is identified with Austrians and embraced by some is distorting.

One would not, for example, say that a heart surgeon attempting to save a man’s life by heart surgery is in favor of pain as the way to save the man, even though pain is most assuredly a byproduct of a major heart operation.

There would never be a critique of a heart surgeon, "Oh, he causes pain." We all know such an operation is performed only to prevent further pain, and possibly death. In the same way, an Austrian economist who calls for a laissez faire attitude during the down phase of the business cycle is doing so only because he knows that the down the road alternative is worse. A resumption of money printing may prop up the earlier central bank manipulated capital structure, short-term, but it will only mean a greater liquidation down the road or hyper-inflation.

Thus, an Austrian calling for liquidation of malinvestments is more like a surgeon calling for a malignant tumor to be cut out. In either case, do you really want the alternative, for them to grow?

Austrian economists aren’t into pain any more than heart surgeons and cancer surgeons. Austrian economists look at the business cycle and are really saying, "Look you better stop this now because it will only get worse." That’s not a pain theory. It’s a theory to limit pain.

Bottom line: Bernanke should go back to reading "Old Testament" economics. His "New Testament" economics is going to end up creating hell on earth for all of us.

Reprinted with permission from Economic Policy Journal.

2011 Economic Policy Journal

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