Submitted by James E. Miller of the Ludwig von Mises Institute of Canada
The Bernank Celebrates
When the last helicopter left the Vietnamese city of Saigon, Uncle Sam hung his head in defeat. The commies had won. The billions of dollars spent, lives lost, and damaged prestige were all lasting consequences. The war left a black mark on the U.S. government – though not one big enough to stop armchair generals from war-making in the Middle East decades later.
As one helicopter’s departure symbolized ignominy for a nation, another present-day lift off seemingly has fireworks going off in the background. Ben “helicopter” Bernanke just hosted his last meeting of the Federal Open Market Committee. He will soon bow out of his current position as Chairman of the Federal Reserve. His successor Janet Yellen is set to carry on his torch. The general consensus is she will embrace the very same policies of her predecessor.
For all his hard work, Bernanke is seeing praise from all corners of the media. In The Globe and Mail, business reporter Kevin Carmichael painted the outgoing central bank head a portrait of praise so colorful, Bernanke may as well have had a halo over his bald head. This isn’t the first time the central banker has gotten an abundance of praise. The Atlantic magazine famously declared Bernanke “The Hero” for saving the global economy. Likewise, Time gave him their Person of the Year award for 2009.
The media loves its heroes – especially when they work in the higher echelons of government. Compared to past laurels, Carmichael’s report is slightly less optimistic. Sure, he concedes, Bernanke is renowned for his relative grace under pressure. The question is: what’s the ultimate effect of his drastic actions in the wake of Wall Street’s near-meltdown? Will the economy keep rolling along as the unemployment rate drips lower? Or will the whole thing blow up in Yellen’s face?
Alan Greenspan left his spot at the Fed a veritable mensch. Just a couple years later, the housing bubble he engineered burst like water balloon. Now he spends his days irregularly commenting on the ongoing recovery, convinced that some people still care what he thinks.
Bernanke’s fate is still undecided, though some are ringing the song bell of victory. Richard Grossman, an economist at Wesleyan University, thinks that without Bernanke, “we’d be in a lot of trouble.” According to National Center of Middle Market director Anil Makhija, “[H]istory will always remember that he stood up at a very difficult time.” A majority of academic economists are in agreement: Bernanke used the printing press to keep the global economy afloat in the darkest days of 2008. When he first came to the Fed, the central bank’s balance sheet showed a total of almost $900 billion in assets – no paltry sum. When the Bernank leaves, he leaves behind a balance sheet of over $4 trillion.
For all his skepticism, Carmichael still seems to hold high views of the outgoing Fed chief. As he writes, “creation of money at that scale should have caused all kinds of problems by now: Runaway inflation, asset-price bubbles; name it. But it hasn’t.” The key here is: it hasn’t happened, yet.
The past few years haven’t just seen money creation the likes of which would make the planners in the Weimar Republic jealous. The Bernanke era also saw the mainstream economic profession chastise anyone who thought central bankers might just be clever by half. For Keynesians and statists, temperance is not allowed in the midst of a crisis. Government must act, and act it will.
Anyone who had the audacity to utter sacrilegious lines such as “maybe it isn’t a good idea to create trillions of dollars out of thin air “ was called a Cassandra or worse. Rampant hyperinflation failed to occur. The dollar did not go the way of Zimbabwe. The S&P 500 hit record highs following each bout of money injections. The amount of folks unemployed has dropped (though partially due to discouragement and a shrinking labor force).
With all this partial success and no slip ups, does Carmichael have a point in that Bernanke deserves an ample amount of praise?
Former MSNBC blowhard Keith Olbermann coined a term for this: premature jocularity. Bernanke is not breakdancing in the front lawn of the Federal Reserve building in Washington D.C., but he certainly isn’t displaying the humbleness of someone who’s unsure of their fate in the history books. New York Fed branch President Bill Dudley recently admitted his cohorts “don’t understand fully how large-scale asset purchase programs work to ease financial market conditions.” On the scale of admissions, that one is high-grade plus one. Dudley has operated the most important central bank branch in the country since 2009. The fact that they were, by all means, flying blind is not comforting.
To think that Bernanke’s extreme measures during the financial crisis will quietly slink away without consequence is an act of false comfort. The trillions added to the Fed’s balance sheet are not sitting quietly on the sideline. The dollars are working their way through the country’s largest corporations. Banks are pyramiding credit, creating money ex nihilo. The funds are likely finding their way to the stock market, often times reflective of investment in the capital goods sector. On numerous occasions, Bernanke has bragged about the robustness of Wall Street. Millions of folks might still be out of work but the banker class is living fat and happy. This is a central bank’s version of progress.
In recent months, the Fed has indicated it plans to incrementally scale back its economy-boosting efforts. This will be the final hurrah of Bernanke’s legacy – a calm unwinding of his life’s work. Even now, the delicateness of this plan is starting to show. Stocks are jittery about a Fed pullback. Traders know the free ride must come to an end sometime. The amount of money creation occurring can’t go on forever. Doing so risks a truly inflationary event, with the effervescing dollars threatening to spill over into the larger economy.
In economics the chicken must always come home to roost. Man can only live beyond his means for so long. Bernanke’s reputation hinges upon the market not tanking as his successors close up the spout of gushing currency. The endpoint is coming. When it happens, the house of cards will tumble down. And with it will come the livelihoods and hopes of many. With every boom there is a bust. It’s an immutable fact of government intervention into the economy.
As Bill Bonner writes, articles full of lavishing praise for Bernanke will begin appearing in coming weeks. Writing puff pieces on state bureaucrats is often a high-paying gig. But they all reveal a particular trend: celebrating the wise achievements of someone empowered to govern society. When businessmen are praised in print, their accomplishments are chalked up as minor victories reserved for the few. When the selfless man of charity is given his due, the praise is mild. When a lord of government sees the pages of a major periodical, it’s the kind of brown-nosing that would make a teacher’s pet uncomfortable.
For now, Bernanke will bask in exaltation. But his just deserts are coming. You can bet $4 trillion on it.