07 January 2010


The Chairman of the Federal Reserve seems determined to pursue an easy-money policy, one that risks consequences reminiscent of the 1970s.

Ben Bernanke gave a speech in Atlanta over the weekend in which he maintained that monetary policy didn't cause any bubble in housing prices. The financial crisis of 2008, which was precipitated by the subprime crisis of 2008, which on most views was the result of the housing bubble in the years leading up to that ... has "regulatory" causes, says Big Ben. The money supply is an irrelevance.

He showed off various graphs designed to make this point. And I'm sorry if this sounds populist, but this is the sort of non-sense only an academic over-impressed by his graphs can believe.

As Wesbury rightly says, in his column on Bernanke's speech (see the above link) what is "disconcerting" about this is not the revisionist history as such, but the fact that "with interest rates at essentially zero, and with the economy and inflation picking up steam, he makes a speech defending extremely loose money."

On a related point, here is a discussion of the internal politics of the FOMC. However often I see it, the use of "hawks" and "doves" in this context (where "hawks" are for tightening the money supply and "doves" for easing it) always strikes me as odd. Heck, the use of those avian metaphors for issues of war and peace is hard enough to get used to -- but this is a metaphorical stretch too far.

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.