For Whom the Bell Tolls

When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain. - Napoleon Bonaparte

Inject "central" before "banker" and Bonaparte was right. A previous chairman of the Federal Reserve once famously said that the Fed's job was to take away the punch bowl when the party got good. Now Bernanke's Fed has been adding liquor to the bowl. Bernanke has been a major disappointment. Instead of independence, the Bernanke Fed has been the handmaiden of the administration. First, he continued the tradition started by Alan Greenspan in pursuing accommodative monetary policy. Like Greenspan who supported the runup in spending by George Bush, Bernanke did this with the first Bush stimulus package and then with Obama's. Even worse his Fed set up a commercial paper facility to "save" that market, then started buying mortgage backed securities to "save" Fannie Mae and Freddie Mac, and then buying Treasurys to "save" the Federal government. The result has be an explosion in excess reserves which would have caused an explosion in inflation had there not be a recession. Of course, all of this simply prolonged the recession and helped turn it into the Great Recession. I had previously said that hopefully Bernanke was doing all of this in order to get re-appointed and once that happened, he would grow a pair. Well unfortunately, he is still a eunuch. Instead of taking the central bank to being independent, he has kept it the lapdog of the administration pledging to keep buying mortgage backed and Treasurys. Big Ben is the big enabler. Milton Friedman once advocated establishing the "monetary rule" where the money supply would be set at the long run growth rate of the economy. Friedman knew that discretionary monetary policy was destabilizing and led to economic uncertainty. However, if money growth was set and kept on a steady path, then we could have steady economic growth without inflation. Well the Bernanke Fed has been the Great Destabilizer. It has pumped reserves into the system. It has monetized the national debt by buying Treasurys. It has bought paper that the market has spurned. It has kept short term rates close to zero. However, it has not aided the recovery. In fact it has kept the recovery from happening. Obama is actually right in blaming Bush for the bad economy but shares equally in the blame for Bush appointed Bernanke and Obama re-appointed him.