Chairman Bernanke: “We could raise interest rates in 15 minutes if we have to. So there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation at the appropriate time. Now that time is not now.”
Scott Pelley, CBS 60 Minutes: “You have what degree of confidence in your ability to control this?”
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No doubt that exchange of 2010 will go down as the most famous of Mr. Bernanke’s tenure as chairman of the Federal Reserve. It is the context in which to savor — if that is the word — the news of today’s “surprise,” as the headlines labeled the announcement of the Federal Open Market Committee’s decision to keep on pumping. On the one hand the Fed has been signaling it's getting ready to start ending the regime of quantitative easing by which it has been trying to keep the sluggish economy from falling back into recession. On the other hand every time it wants to start tapering off it discovers it can’t.
... How eerie, though, that Krugman ridiculed adversaries who anticipated inflation right before the Bureau of Labor Statistics reported that inflation has ticked up, if only for a month, to 0.5% — a worrisome 6% annualized rate. (Core remained at an unworrisome 0.2%, yet still it is a chilling gust….)
This blip does not disprove Krugman’s sanguine stance on inflation. It may yet prove, however, were further proof needed, that the Greeks were right: Nemesis inevitably follows hubris. Prof. Krugman might privately reflect on this … and on his own call, in 2002, that “Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” Terministic screen, anyone?
As the more genteel Chairman Bernanke himself observed on July 10, “Financial stability is also linked to monetary policy, though these links are not yet fully understood.” Yes, not yet fully understood.
On July 10th, Federal Reserve Board Chairman Ben Bernanke made a widely noted speech before the National Bureau of Economic Research, in Cambridge, Massachusetts: “A Century of U.S. Central Banking: Goals, Frameworks, Accountability.” The immediate takeaway? Rumors of the “tapering” are widely exaggerated.
Chairman Bernanke’s speech provided much more: an overview of the Federal Reserve’s history on the occasion of its centennial. Bernanke: “I’m glad to have the opportunity to participate [in this conference in recognition of the Federal Reserve's centennial]. In keeping with the spirit of the conference, my remarks today will take a historical perspective.”
Toward its conclusion: “Both research and experience are needed to help the Fed and other central banks develop comprehensive frameworks that incorporate all of these elements.” Especially in the spirit of Mr. Bernanke’s commitment to transparency and accountability his concluding remarks surely encourage the prospects for passage of the pending legislation introduced by Rep. Kevin Brady (R-TX), chairman of the Joint Economic Committee, to constitute a Centennial Monetary Commission, HR 1176 .
The debacle ignited by the Federal Reserve this week invites this question: What would have happened had Chairman Bernanke refrained from saying anything? He held on Wednesday one of his press conferences, announcing that, as the Associated Press put it, the Fed would likely slow its $85 billion-a-month program later this year and end it next year if the economy continued to strengthen. The stock market collapsed, and the value of the dollar soared — to more than a 1,300th of an ounce of gold at last check — and alarm is spreading.
Well, let it not be said that The New York Sun failed to warn of this kind of chaos. We did this a bit more than two years ago, in an editorial called “The Verbal Dollar.” It quoted a founder of TradeMonster.com, Jon Najarian, as warning Mr. Bernanke’s press conferences would ignite a “giant ramp up in volatility.” He reasoned that traders “react to one word removed from a paragraph in a policy statement” and remarked, “now he’s going to hold a press conference?” It reminded us that there had long been a tradition of silence among central banks, going back at least to the Bank of England.
Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender.
Arizona is poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.
The measures backed by the limited-government Tea Party movement are mostly symbolic -- you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.
“The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing,” said Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”
Bernanke has pushed interest rates to near zero since the 18-month recession that began in December 2007. The Fed said in March it would continue buying $85 billion in securities each month in a program known as quantitative easing that has ballooned its assets beyond $3 trillion and is aimed at keeping long-term borrowing costs low to support economic growth.