Bernanke Stops Making Sense
By Staff News & Analysis - September 28, 2010

Bernanke: Reforms, research will help mitigate future crises … Federal Reserve Chairman Ben Bernanke (left) defended the importance of economic research in confronting the recent financial crisis and presented a vision for further study and reforms needed to avert future downturns during a speech. "The financial crisis did not discredit the usefulness of economic research and analysis by any means. Indeed, both older and more recent ideas drawn from economics have proved invaluable to policymakers attempting to diagnose and respond to the financial crisis," said Bernanke, speaking to a capacity crowd at Richardson Auditorium in Alexander Hall. "Recent events have made clear that understanding the role of financial markets and institutions in the economy, and of the effects of economic developments on finance, is more important than ever." – Princeton University

Dominant Social Theme: It's not our fault …

Free-Market Analysis: Ben Bernanke is on the rebound. Given the idea that the best defense is a good offense, Bernanke has apparently decided to make elaborate speeches justifying American economics and his actions – and the actions of the Fed. Dominant social theme: We're on top the situation so don't you worry. Our massive brainpower will make sure this sort of thing doesn't happen again."

But the trouble with speechifying, especially using concepts and language that few understand, is that during a bad economic time people tend not to care. During the good times, people are willing to accept almost any authoritarian mumb-jumbo because it has no impact on their lives. Based on past experience, Ben Bernanke may believe that he can rally public opinion but it is probably too late for that. This is a more cynical day. Princeton may listen, but not Middle America (what's left of it).

This won't stop him from trying. He defends the ruinous system itself, the actions taken by thought-leaders and legislators and generally attempts to explain that the system would have unwound even more terribly if not for the regulatory and legislative process coming to the rescue. Here are some additional operative paragraphs from the article:

Bernanke discussed causes of the crisis, such as failure to manage risk by private institutions and the failure of regulatory systems to correct this overleveraging. He then defended the Federal Reserve's response to the crisis, such as providing funds to financial institutions, buying mortgage-based securities and putting banks through "stress tests."

Bernanke cautioned that, while the recession has officially been declared over, more work needs to be done by policymakers to encourage economic growth. "Although financial markets are for the most part functioning normally now, a concerted policy effort has so far not produced an economic recovery of sufficient vigor to significantly reduce the very high level of unemployment," he said. He emphasized the role that academic research plays in economic policymaking.

In dealing with nervous banks that had stopped lending as the crisis mounted, "two centuries of economic thinking on runs and panics were available to inform the diagnosis and the policy response" by the Fed and central banks around the world to lend money to solvent institutions, Bernanke said. Economic research also helped formulate policies to address incentives, excessive risk-taking and companies that were "too big to fail." New financial reform legislation and measures taken by the Federal Reserve are increasing oversight of the financial system and attempting to limit risk-taking, Bernanke noted.

This is just absolute gobbledygook. First of all, those who are aware of real, free-market economics, (Austrian-oriented economics), know that the various financial crises afflicting the West have long been explained and even foretold in detail. How can Bernanke ignore the explosion of literature on the Internet about free-market economics? Doesn't it count? Perhaps only "ivory tower" Keynesian and Friedmanite economics are worthy of notice.

Bernanke emphasizes that it was failure to control private market risk that led to the current crisis. Yet a cursory reading of free-market economics will make it clear that it was central banking overprinting of money that created the financial bubbles that were inevitably to be punctured.

Bernanke then defends the huge amount of money thrown at the banking system, which was necessary in his view to stabilize it after risk taking. But in fact, there is no reason to have a banking system as it is currently constructed. It is nothing but a distribution arm of central banking. Central bankers could distribute money by helicopter as well, as Bernanke himself has pointed out, and the result would probably be quicker dispersal of money into the larger Western financial system. The argument will be made that bankers are necessary to allocate capital to appropriate businesses. But the money, in fact, comes from the central bank; why are money center and local banks in charge of distributing it; what makes them special? Their competences?

Bernanke begins with a false premise – that the financial crisis was caused by excessive private sector risk taking – and then spins out an almost endless array of bureaucratic solutions undertaken by regulatory and central banking authorities to ameliorate problems that never existed. In fact, the volume and price of money simply cannot be predicted by human beings. It is nothing but price fixing and over and over it results in various forms of ruination.

As Bernanke himself explains, the current system has been operative for 200 years now at least. The countries of its origination, America and Britain, are nearly bankrupt; jobs have virtually ceased to be created. Price information remains entirely untrustworthy. This is the system Bernanke defends.

In fact, the combination of the financial crisis and the truth-telling of the Internet is undermining a host of elite promotions in our view. The arguments launched by the elite in defense of these promotions reveal clearly the answers of elite apologists and facilitators such as Ben Bernanke. We need only to evaluate the positions that Benanke is taking these days – and his avoidance of even the mention of free-market finance – to see that there are very curious lacuna in his arguments.

Given that gold and silver are continuing to surge in price relative to paper currencies and that the defenses for central banking that Bernanke is offering are neither convincing nor sincere, we wonder how long the current dollar-based, central banking and paper money economic system can continue to function. We used to think the Internet and its truth-telling would take as much as half a century to topple the current system. We keep revising the timeline down.

What comes next if the system does topple? There are perhaps four alternatives we see, currently. The first would be IMF super-money that would eventually bestow central banking powers on the IMF to issue global money called bancors. The second would be an elite-run gold standard that would allow the powers-that-be to retain control over the system. The third possibility might be increased state-run central banking at the local, federal or state level. This view has been popularized by Ellen Brown.

The fourth alternative would arise out of the chaos of a failing economic system and might reestablish a private gold-and silver, free-banking standard. This is the solution we have mentioned for the past two-plus years as the preferable one as it leaves the elite without much established monetary influence.

After Thoughts

Some believe the power elite owns most of the world's gold in hidden vaults. But free-market economics tells us that it is impossible to maintain an undesirable monopoly. Absent mercantilism and continued coercion, the elite will not be able to maintain the control it seeks, no matter how hard it tries. Surely, the free-market itself provides a more equitable outcome than the rapine and destruction the power elite now offers.