Bernanke doctrine

Just rediscovered this gem by Bernanke:

But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

I’ve got a better one than Bernanke’s:

There ain’t no such thing as a free lunch

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The Federal Reserve printing press has been called “helicopter money.”

I read Ben Bernanke’s book, " 21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19" a few months ago.

Dr. Bernanke, who is a Nobel-prize winning economist in addition to the Federal Reserve chairman during the 2008 financial crisis, gives a detailed description of Federal Reserve policies.

Two notable quotes from the book which describe the changes in Macroeconomic factors:

"The first of these developments is the ongoing change in the behavior of inflation and, in particular, its relationship to employment.

The second development is the long-term decline in the normal level of interest rates."

During the period of time covered by the book, inflation declined and stayed stable at a low level and interest rates trended downward. The Fed tweaked the fed funds rate to adjust a stable economy in the way that we would steer a car with slight movements of the steering wheel.

The big change in the Fed’s approach came after the 2001 recession which was caused by the dot-com stock bubble burst. Fed Chair Alan Greenspan cut the fed funds rate and held it low for a long time. This led to the housing bubble. After the 2008 financial crisis, Bernanke cut the fed funds rate and also began QE and other new programs to pump money into the banks. After the 2020 Covid crisis, Fed Chair Jerome Powell did the same. The Fed did this to support the economy and maintain employment.

The Fed’s money pumping to the banks didn’t lead to consumer price inflation because the banks loaned relatively little to consumers. Instead, the banks invested in the asset markets (stocks, bonds, real estate) which let to inflation in asset prices. Asset owners (including investors) were happy because their portfolio values were increasing.

Consumer price inflation didn’t spike until helicopter money was sent directly to consumers by act of Congress in 2020 and 2021, increasing consumer demand during the pandemic when supply was decreased. This was extraordinary fiscal stimulus at the same time as the Fed’s extraordinary monetary stimulus.

Conclusion: All prices, whether consumer or asset, respond to supply and demand. In the past 20 years, monetary stimulus (Federal Reserve) mostly impacted asset prices. Fiscal stimulus (plus the indirect effects of monetary stimulus on the macro economy such as unemployment level) impact consumer prices.



Much of the money was parked at The Fed. and the cost of servicing this money is now rising rapidly:

Currently, the Fed pays over $750 million in interest every day to banks, hedge funds and other large financial institutions that have parked $5.7 trillion in its vaults. A year ago, that daily interest payment was only $18 million. But that was when the amount needing to be sterilized was much smaller and when interest rates were much lower.

All Bernanke did was to put off the evil day of economic reckoning - a sort of standard, post WW2, economic policy - Keynesian policy if you like.

As I said, there’s no such thing as a free meal and the bill for Bernanke’s ‘free meal’ is on its way.

I’m still buying gold :slightly_smiling_face:

That completely is devoid of any education in econ.

Bernanke developed counter cyclical economics. In the 20 year period leading up to the pandemic we needed to stop our inclination to fiscally tightening especially in the down times.

The 1929 to 1933 period was a period of fiscal tightening until FDR got past such notions to a degree.

Fiscal tightening is not responsible policy. Pandering or demagoguery does not make it good policy.

No cost - look at the current state of the US dollar

That ain’t workin’ that’s the way you do it. Get your money for nothin’, get your chicks for free

Not Dire Straits, just Dire Circumstances :slight_smile:

I’m buying gold, not US dollars, just like the banks are doing all around the world

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