The Biggest Pusher of Easy Money, Former Federal Reserve Chairman Bernanke Warns on Stagflation in New Book

What do you do you do when you are the man that espoused easy money through Quantitative Easing, took it to new levels and the bloated world you created implodes? You write a book about it of course. That’s exactly what former Federal Reserve Chairman Ben Bernanke has done and of course he warns in his new book that the United States could face simultaneous sky-high unemployment and inflation on levels not seen since the 1970s. Any mention of his being a cause?

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With the world financial markets unravelling with trillion dollar wealth destruction, cryptocurrencies collapse’s and Central Banks raising rates in response to record high inflation you would think there would be some reflection thereto. Not that I could see.

He did manage to blame the events for the late publication though; “Given supply-chain disruptions, this book took six months to go from final manuscript to appearing in the store,” he said.

Mr. Bernanke ran the United States’ central bank from 2006 to 2014 and oversaw a few crashes in his time, wrote his book during the Covid-19 pandemic. He served during George W Bush and Barack Obama’s presidencies. He was in the midst of the financial crisis of 2008 and the subsequent Great Recession.

After Mr. Bernanke left the Fed he has remained in Washington, where he is a fellow at the Brookings Institution and a senior adviser to the investment firm Pimco. He said he preferred not having to make the decisions that Mr. Powell now confronts, or endure the hours of congressional testimony in which his decisions were questioned.

New York Times

He writes about the history of the Federal Reserve and how it responded to economic crises in the past century.

In an interview with The Times Bernanke said he is confident that current Federal Reserve Chairman Jerome Powell can handle the troubled waters but warned about stagflation, which is when both unemployment and inflation are high.

“Even under the benign scenario, we should have a slowing economy,” he told The Times. “And inflation’s still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high.” “So you could call that stagflation.”

Federal Reserve Chairman Paul Volcker

The most notorious former Federal Reserve Chairman was Paul Volcker who drastically raised interest rates to temper inflation. His moves triggered a recession and massive public anger toward the Federal Reserve. Mr Bernanke said inflation was more universally felt.

“The difference between inflation and unemployment is that inflation affects just everybody,” Mr Bernanke said. “Unemployment affects some people a lot, but most people don’t respond too much to unemployment because they’re not personally unemployed. Inflation has a social-wide kind of impact.”

Inflation Targets

Mr Bernanke also said that the Federal Reserve should not move its inflation target, which is currently at 2 per cent.

“Inflation targets should not be used as a short-run tool, you know?” he said. “If you raise the inflation target to 3 percent for some short-term purpose, then why not 4 percent, or why not 3.5 percent, or why not create a band, or whatever?”

Housing Prices

He is concerned about housing prices, saying they have “risen a lot, like 30 percent in the last two years.”

“That’s something that needs to be watched,” he said, but unlike in 2008, “the mortgages that are being lent to buy these houses are generally much higher quality than the subprime mortgages of 15 years ago.”

Source: New York Times

From The TradersCommunity Research Desk