Tuesday, September 21, 2010

Bernanke or Miller?

Ben Bernanke will likely go down as the least capable chairman of the Federal Reserve or at least tied with William Miller for that dubious honor. Bernanke has flooded the economy with liquidity in having the Fed support the spending spree started by George Bush and continued fourfold by Barack Obama. A continuing discussion at the Fed is from Bernanke continuing to press for monetizing the national debt by buying long term Treasuries after having bought the securities of Fannie Mae and Freddie Mac and creating a commercial paper facility to buy commercial paper. I wrote in a piece a couple of years ago that the Federal Reserve's policies were destabilizing and adding to the uncertainty in the economy. What the Fed needed to do if it wanted to ensure that the economy would be on the right track and start to grow without inflation would be to adopt a monetary rule and grow the money supply at a rate equal to long term economic growth. Well lately there has been a rash of articles saying the same thing. John Taylor at Standford and Allan Meltzer of Carneige-Mellon have written pieces saying the same thing. Adopt a monetary rule, quit the knee-jerk reaction to contemporary events and focus on the long run. Maybe they will be listen to since obviously someone writing here in fly-over land keeps getting ignored.


John in KY said...

I saw a piece on the news about Geithner going to China to talk about them adjusting their currency to proper market value. What % is it devalued, and could China mark up the value of their money in the future to counteract or ease a drop in the market? Above my head and thought you will know.

H.A. Black said...

John, What China does is to tie the yuan to the dollar. With all the pressure Geithner is putting on them it is interesting to see their answer. While he was at the G20 conference in Korea, the Chinese added a record amount to their foreign reserves - meaning that they bought foreign currencies with the yuan which pushes down the yuan even farther. Its their way of telling Geithner to shove it.