In response to Lunch with the FT: Ben Bernanke, by Martin Wolf, on 23rd October 2015
"It was a happy chance that this scholar, known for his work on the Great Depression, was chairman of the central banking system of the US during the biggest financial crisis since the early 1930s"
Happy chance for whom?
If you happen to be a Wall Street banker, it was indeed a very 'happy chance'. Dr. Bernanke completed the institutionalization of 'moral hazard' started by his old boss, Mr. Alan Greenspan. He also provided over 5 years of carry trade heaven and front running opportunities that came with a cast iron guarantee.
If you're the President or the Treasury, the 'happy chance' was ecstatic, never mind happy. Five years of borrowing at next to nothing, with the added bonus of getting all your interest back at the end of the year.
If you're a zombie company, Dr. Bernanke's time at the Fed was a laugh a minute, or would be if zombies had a sense of humour. Market forces suspended, you've been able to stagger along, keeping yourself going with free money, enjoying a slow drawn out death that will accelerate when rates eventually go up... releasing the resources that have been locked up inside your shell.
On the other hand if you happen to be a regular saver looking to take some income from the fruits of your previous efforts, keep the champagne on ice - you've had no return on your savings. Indeed, you're in danger of being found out for the 'rentier' that you are. Get out and spend, do your bit for aggregate demand you useless loafer.
If you are a CEO who knows that market prices are the essential ingredient to making long-term investment decisions, forget it. You may think you need 'honest' prices, but what you actually need are 12 academics sitting in a room in the Eccles Building setting the most important price in capitalism...the price of money...at zero.
If you are a young person hoping to enter a vibrant economy - tough - the monetary politburo abolished vibrancy the day they judged 'failure' to be the unacceptable face of capitalism.
So, like much else, it depends on who you are. In my view, Dr. Bernanke has not got the foggiest idea of the damage being done by his policies. He is not alone. Central Bankers use equilibrium models that do not include money, banking or debt; models which do not come even close to describing the real economy. As far as I can tell they don't understand capital formation, human motivation, individual behaviour or group dynamics - but hey, they do a mean spreadsheet.
The economic theories that have been dominant since the nineteen thirties are based upon a misunderstanding of what caused the Great Depression - a misunderstanding shared by Dr. Bernanke. The only economist to predict the financial crash of 1929 and the depression that followed it was Ludwig von Mises. Some might think it strange that such a prescient fellow is relatively unknown. Actually when you understand that the real nature of the problem is debt, the unpopularity of anyone pointing this out becomes self-evident:
The people who run the world like debt. The global economy is run by bankers, who make a living from packaging and selling debt. The bankers fund the politicians who give them the debt friendly policies they like. Both bankers and politicians prefer the academics that provide them with the intellectual credibility necessary to keep the credit expansion going. Step forward Dr. Bernanke. But again, he's not alone - a perfect example of this marriage of banking, politics and academia was the repeal of Glass-Steagall during the administration of President Clinton. This was a policy change that enabled a massive increase in casino banking and derivative trading, signed by a President backed by Wall Street, given academic credibility by Professor Larry Summers, an academic with a poor track record but a rich address book.
Debt caused the last financial crash, and debt will cause the next one. Dr. Bernanke doesn't understand this. His policies of money printing and ZIRP are akin to giving more drugs to a drug addict. They temporarily relieve the pain of withdrawal but do not solve the problem. It is a temporary fix, which requires ever increasing doses in order to continue the illusion that it is working. Hence we are now being told that raising interest rates is too ‘risky’, and what is required are negative interest rates, helicopter money, QE for the people, and a cashless society so that people cannot avoid the negative interest rates. More of the same.
I’ll leave the last word to the aforementioned prescient economist, Ludwig von Mises, who wrote the following before the crash of 1929 and the great depression that followed. It is still as true today as it was then:
”There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”