Bernanke - 2010 "We can stop inflation any time we want"
- Thread starter Tsing Tao
- Start date
If there lips are moving, they are lying
I 'member it well.
I think that was the first time I started thinking "holy crap, these people really don't know what they are doing. And they're leading us."
Ah, the days before when I was blissfully ignorant of it.
I thought, and still believe, Bernanke was one of our best Fed Chairs in the history of the Fed, I wish he were still chair. He had a way of speaking so that ordinary folks could follow and he avoided too much detail detail for the average person to absorb. However that simplification has led to some misunderstanding among the public.
For example, in this video the moderator mentions that in the wake of the financial crisis the Fed supplied three trillion. Many people will think the Fed just printed money and handed it to banks and businesses that were otherwise failing. It is mentioned that this money was loaned, but that key point will pass by many. And the word "colateralized" is never spoken.
Of course when one delves into details one finds that the fed did not authorize additional spending of three trillion, only Congress can do that. This money was not spent, as new "outside" money would have been, but rather it was loaned to businesses and banks that could put up collateral to protect the text payer from loss. Those businesses and banks that had insufficient collateral to borrow enough to keep their doors open went under. The equivalent of loan checks written by the Treasury went to businesses that could qualify, and bank transactions were handled directly by the fed by crediting reserve accounts in exchange for what was at the time illiquid collateral, but illiquid did not mean worthless. The net of course was a huge temporary flow of "cash" to businesses and banks. This is not net printing regardless of Bernanke's later characterization. Loans to the private sector, to the extent they are paid back, do not result in net printing! There was not suddenly three trillion dollars of extra new outside money suddenly dumped into the economy, as many seemed to think. Those loans, at interest!, were filling holes in the economy. So it is understandable, because of their misunderstanding of the process taking place, that some folks, including many ET'rs and even some considerable number of economists incorrectly predicted horrible inflation would result! In the end, the government made money on TARP overall, and a large net reduction in the cumulative deficit resulted relative to what the deficit would have been had the Fed, Treasury, and Congress not acted as they did!
If you contrast what the government did in the wake of the financial crisis with what the old, private Central Bank did in the wake of the Great Depression you'll see how brilliant was the response in late 2008 and early 2009 by comparison. In large part we have both Paulson and Bernanke to thank, but I think especially Bernanke!
Real "printing" occurs when the Fed covers a Treasury overdraft due to government spending on goods and services. Loans made by the government fall into a different category. Neither the Fed nor the Treasury has any direct say in the size of deficits. Congress decides that. The Fed and Treasury Act according to Congress's directives. The Fed, however, does, via monetary policy, exercise some control over the demand for "inside", or "credit" money, a type of temporary money, issued by private sector Banks.
When Bernanke said the fed can stop inflation whenever it likes, he was probably referring to the then current economic conditions. I doubt he had in mind the kind of inflation fueled by pandemics or external events. Congress, of course, via fiscal policy, wields the most powerful tool over inflation. But Congress, the political animal, is wont to make little use of their power in this way.
For example, in this video the moderator mentions that in the wake of the financial crisis the Fed supplied three trillion. Many people will think the Fed just printed money and handed it to banks and businesses that were otherwise failing. It is mentioned that this money was loaned, but that key point will pass by many. And the word "colateralized" is never spoken.
Of course when one delves into details one finds that the fed did not authorize additional spending of three trillion, only Congress can do that. This money was not spent, as new "outside" money would have been, but rather it was loaned to businesses and banks that could put up collateral to protect the text payer from loss. Those businesses and banks that had insufficient collateral to borrow enough to keep their doors open went under. The equivalent of loan checks written by the Treasury went to businesses that could qualify, and bank transactions were handled directly by the fed by crediting reserve accounts in exchange for what was at the time illiquid collateral, but illiquid did not mean worthless. The net of course was a huge temporary flow of "cash" to businesses and banks. This is not net printing regardless of Bernanke's later characterization. Loans to the private sector, to the extent they are paid back, do not result in net printing! There was not suddenly three trillion dollars of extra new outside money suddenly dumped into the economy, as many seemed to think. Those loans, at interest!, were filling holes in the economy. So it is understandable, because of their misunderstanding of the process taking place, that some folks, including many ET'rs and even some considerable number of economists incorrectly predicted horrible inflation would result! In the end, the government made money on TARP overall, and a large net reduction in the cumulative deficit resulted relative to what the deficit would have been had the Fed, Treasury, and Congress not acted as they did!
If you contrast what the government did in the wake of the financial crisis with what the old, private Central Bank did in the wake of the Great Depression you'll see how brilliant was the response in late 2008 and early 2009 by comparison. In large part we have both Paulson and Bernanke to thank, but I think especially Bernanke!
Real "printing" occurs when the Fed covers a Treasury overdraft due to government spending on goods and services. Loans made by the government fall into a different category. Neither the Fed nor the Treasury has any direct say in the size of deficits. Congress decides that. The Fed and Treasury Act according to Congress's directives. The Fed, however, does, via monetary policy, exercise some control over the demand for "inside", or "credit" money, a type of temporary money, issued by private sector Banks.
When Bernanke said the fed can stop inflation whenever it likes, he was probably referring to the then current economic conditions. I doubt he had in mind the kind of inflation fueled by pandemics or external events. Congress, of course, via fiscal policy, wields the most powerful tool over inflation. But Congress, the political animal, is wont to make little use of their power in this way.
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Lol.
No matter how many times saying it's not printing doesn't change the fact that it's printing and direct cause of current inflation
Fed was warned 12 years about it still they became absolutely reckless
My comments had to do with the Fed's response to the financial crisis which was the topic of the interview that Tsing posted. In this thread collaterized federal loans are being confused with printing by some of you.. The Fed does print, and I have mentioned many times that that occurs when the Fed covers Treasury overdrafts in the Treasury's reserve account. Here I should add that without any of this "printing" at all we would be in depression and the economy would eventually fail. It's the aggregate amount of printing vis a vis aggregate productivity and the current state of the economy that matters, not printing per se. You have a greatly oversimplified understanding of the Fed's role. And here you are assuming the fed has some control of "printing". They have no control whatsoever of that. That's entirely controlled by Congress. The fed controls how much of the total outside money appears in the form of bank reserves and how much in the form of Treasuries. They are fair game for criticism in that regard.