More important than anything that Ben Bernanke might say in his long-awaited speech Friday in Jackson Hole, Wyo., is the thing he won’t say, but should.
Positively out of bounds for the chairman of the Federal Reserve is the admission that he is in the wrong line of work. The institution he leads was created to conduct a central banking business. But Congress and he have steered it into the central planning business. In so doing, the Fed has exchanged a job it could do for one it can’t.
When the Fed opened its doors in 1914, its job was to lend against sound collateral to solvent banks and to protect the value of the dollar. The Founders gave no thought to empowering their brainchild to steer the course of the economy. The future would take care of itself if the dollar were sound and the banks were solvent, they reasoned. As for the dollar, it was legally defined as a weight of gold. You couldn’t just materialize it.
Today’s monetary mandate comes in innumerable parts, written and unwritten: to keep the economy growing, the workforce fully employed, stock prices rising, the banking system under surveillance and the inflation rate modulated (neither too high nor — oddly enough — too low). To achieve these desired ends, the Fed manipulates interest rates, plays mind games with the stock market and creates hundreds of billions of dollar bills, with a few taps on a computer keyboard. The Bernanke dollar is lighter than air: a piece of paper or a swarm of pixels.