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Source link: http://archive.mises.org/9325/bernankes-errors-exposed/

Bernanke’s Errors Exposed

January 27, 2009 by

Good piece by George Bragues in the Financial Post:

The strangest thing about the ongoing financial crisis is that U.S. Fed Chairman Ben Bernanke has so far come out of it relatively unscathed. Except for the narrowing of some credit spreads over the last few months, economic indicators have not sustainably improved since Bernanke initially moved to address the crisis. In fact, matters have grown significantly worse.

Most observers have seen little or no connection here. But there is one. By setting interest rates too low right from the outset, Bernanke aggravated the crisis. He did so by putting a destructive chain of events in motion, starting in the foreign exchange market, then moving into the oil trading pits, the latter eventually making itself felt in the economy, and all of this culminating in the financial conflagration experienced this past fall.

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{ 5 comments }

chris January 28, 2009 at 12:00 am

From everything I have read, the Fed’s people cling to the idea that the economy will turn around, eventually, and when the inflation hits, Bernanke will be equally vigilant in removing the credit from the system as he has been in injecting it. This presupposes that the economy will indeed turn around before his term is up in the summer of 2010. And when it does turn around, he will be hailed as the right guy at the right time, blah, blah, blah.

Is there an InTrade on who will replace him (or if he will be reappointed)?

Friedrich January 28, 2009 at 12:18 am

Well I found this some time ago and wrote that
http://fdominicus.blogspot.com/2008/09/read-it-try-to-comprehend-it.html

The cure to too much money is ‘mo money.

And even worth the past actions followed the same scheme. Bubble burst -> Interest rate down

It’s stupidity driven to the max…

Deefburger January 28, 2009 at 8:14 am

Fun’s over. Back to the subject at hand…

I talk with my clients and friends about what is going on, and they are confused by these actions as well. They understand that the credit problem is due to the expansion of the credit market. Low interest and no-down-payment loans to risky individuals. The Fed’s LOWERING the interest rate seemed completely opposite to what needed to happen.

In addition, they are pissed off that the bailout money bought banks and financed institutional takeovers rather than directly assisting those who got caught with their pants around their ankles, namely the risky folk who got the loans. But not all of those people were problematic risks prior to the collaps of the housing bubble. Many were doing just fine until their variable interest loans varied in the wrong direction. I saw this happen to my neighbor, a good hard-working businessman who lost his business and his house.

The general populace is not stupid. Ignorant of the big picture view of the power struggle between government, banking, and the tax base, perhaps, but not stupid. The problem with convincing them that the Fed itself, and Fed money is at fault, is that they have all come to view the Fed in the same light that they view water, gas, sewer and roads. That is to say they see the Fed not as a bank, but a utility.

So, if there is a crisis of water, we ration. If there is a crises of waste over-flow, it’s the weather. If there are pot-holes it’s the contractors or the budget. And if it’s the credit market, it’s the credit companies, mortgage houses, investment houses, banks etcetera, NOT the Federal Reserve! After all, they are not a bank are they? They’re a UTILITY!!!

You don’t tear up the streets when the water runs out and put in new pipe do you?

You don’t tear out the sewer system when it overflows into the river do you?

So why would you take the Fed apart just because there’s a “downturn” in the economy?

THIS is the thinking I run into daily. These people don’t like what is going on. They don’t understand, and rightly so, why bailouts bailout big institutions and not “the little guy”. What they don’t understand is how they themselves view the central bank.

They can see all of the errors made by Bernake and Co. but don’t see any connection, no causality, other than “mistakes” made by the institution itself. They do not even consider the institution of the Fed to be the fault, because, like all the other utilities, they are a NECESSARY evil! They are a utility, carved in stone into the very fabric of modern society.

This is a very frustrating situation for anyone who knows that the existence of the central bank is itself the problem. To the layperson, this institution is as vital as the water supply.

Friedrich January 28, 2009 at 9:53 am

Sorry for this follow-up the I placed at the top of the link I mentioned before has gone. But I found this
http://online.wsj.com/article/SB122428279231046053.html

And that’s what Bernanke never ever have considered. He thinks itself the situation is the same as during the Great Depression and I guess he feared to repeat what was seen as “problem” to that time. The problem to that time was (I guess Bernanke sees it like that) harsh money contraction. I doubt very much that this was the only problem, howerver Bernanke fears that he will put aside this felt “disaster” and opens the money gates and tries to drown the market….

And so the above comment looks correct to me. Bernanke is fighting the “last” fight. Not the current one…..

And it seems nothing could convince him to question is with highl likliness wrong assumptions.

Howerver it’s another example of “actionism should be feared”….

killben January 29, 2009 at 4:54 am

Ben and Bair … deserve NOBEL PRIZE .. One for screwing up in 2008 and the other for screwing up 2009 (soon) with her bad bank idea … it seems silliness has no end and common sense no place

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