Economists aren't buying Federal Reserve Chairman Ben Bernanke's (pictured left) argument that the Fed's low interest rates early last decade didn't contribute to the financial crisis. In a recent Wall Street Journal survey of top economists, 42 said low rates contributed to the housing bubble, while 12 said low rates didn't contribute. In recent congressional testimony, Bernanke said, "Regulatory and supervisory policies, rather than monetary policies, would have been more effective means of addressing the run-up in house prices." But economists weren't swayed. The basic problem was the mistake of raising short-term interest rates too slowly from 2004 through 2006, Miles Kimball of the University of Michigan told the Journal. "Going up quicker would have been better." Low rates weren't the only factor behind the financial crisis. Allen Sinai, chief economist at Decision Economics, offered these reasons to the Journal: "Low interest rates, financial innovations in mortgages, lax regulation, and speculative euphoria." But Bernanke is wrong for trying to take low Fed rates out of the equation, economists say. "The evidence is overwhelming that those low interest rates were not only unusually low, but they logically were a factor in the housing boom and therefore ultimately the bust," Stanford University economist John Taylor told Bloomberg. Dean Baker, co-director of the Center for Economic and Policy Research, agrees. "Low rates certainly contributed to the crisis," he told Bloomberg. "I don't know how he can deny culpability. You brought the economy to the brink of a Great Depression." – MoneyNews
Dominant Social Theme: The Fed must do better.
Free-Market Analysis: The other day we wrote about Ben Bernanke's difficulties with Congress, and how he had finally decided to invite the legislative branch to audit the Fed's handling of the AIG matter. We wrote: "We have to believe the Fed and its insiders are in an increasingly uncomfortable position. They must actually support the absurd idea, day-to-day, that the Fed is a public trust – rather than what it is in our opinion, an … engine of middle class destruction, an entity that has singlehandedly destroyed American industry and devalued the dollar, over the past century, by perhaps 99 percent."
https://www.thedailybell.com/749/Ben-Bernanke-Tells-Congress-to-Investigate-Fed/
But the news gets even worse. Bernanke is vainly striving, presumably with the help of the Obama administration, to point the finger of blame for the economic crisis directly at Wall Street. This is all he can do, really. For if Congress does come up with a severe realignment of Wall Street's financial machinery, there will be no justification not to do the same thing to the Fed. Yet, now it seems – according to the above article excerpt – that even mainstream Keynesian economists are saying the Fed has as much blame to shoulder as any other entity, if not more. (We knew that of course, as did you, dear reader. But for some reason until recently, this insight seems to have escaped a great many "serious" economists.)
We live in unusual times. The Fed's irresponsible money printing led to the great stock market crash of 1929. The Fed, we have been informed by reliable sources, printed far more money in the 1920s than it was legally entitled to print. The wise men at the Fed printed so much money that President Franklin Delano Roosevelt eventually had to declare bank holidays lest people discover there was no gold to cover their notes. Roosevelt finally decided the only way out was to confiscate gold entirely, and that's what he did.
The point is that the Fed is likely used to acting with great arrogance and those running this institution seem to believe they are not in any sense accountable, even though the Fed is an institution of the state, chartered by law and responsible in various ways to Congress and the executive branch. But times have changed. The Fed may still be unaccountable in many ways but Congress and the American people are certainly becoming a lot more demanding.
Ron Paul's Campaign for Liberty writes to us that, "Senator Jim DeMint (R-SC) has led the charge to place a ‘hold' on Bernanke's nomination to a second term as Fed chairman until the Senate votes on Audit the Fed. This means to get a vote on Bernanke, Harry Reid has to have a vote on "cloture" (just like in the health care battle), and that requires a super-majority of 60 votes. Insiders now tell [us] that Harry Reid is threatening to ram through a cloture vote as early as next week."
The Campaign for Liberty continues by asking that interested individuals contact their Senators to let them know two things:
1.) If they are not cosponsoring Audit the Fed, you expect them to sign on in support of finding out what the Fed has done with trillions of our dollars. Tell them you will make sure their constituents know of their action or inaction on this issue.
2.) They must vote "no" on cloture until after there is a vote on Audit the Fed. No vote should be taken on Ben Bernanke's confirmation, or the nomination of anyone else for Fed Chairman, until Audit the Fed has received a public, up or down vote. The real issue here is not the Fed chairman himself. It is the need for complete transparency.
The Campaign for Liberty notes that Ben Bernanke's term as Fed chairman expires on January 31, "so Harry Reid is under pressure from Barack Obama to act quickly – and also that the Senate has enough on its plate with the fight over health care, so they can ill afford to face yet another tough fight over the leadership's agenda."
It is our belief that those doing the bidding of the power elite to reinforce various dominant social themes – promotions – likely still see the emergent pushback as part of serial crises to be overcome. There is good reason for this as previously when a challenge to power elite memes emerged it was simply beat back. A commission was established, an investigation was commenced or a panel was created to sort through whatever complaint was making headway at the time. But we think things are different now. We think the crises that the instrumentalities of the power elite are facing are a result of increased information and sophistication. People are better understanding the way the world works and are therefore more apt to speak out. We think the pressure will continue to build, no matter what. It could be that Bernanke should be careful what he wishes for.
