Bernanke’s Defense Of Fed Monetary Policy Is Utter Nonsense

Mainstream economists continue to defend and even praise Ben Bernanke’s response to the 2008 financial crisis. But as it becomes more and more obvious that the United States economy never fundamentally recovered from the Great Recession, savvier analysts are speaking up. On Bloomberg TV, David Stockman lambasted Bernanke for flooding the markets with zero-cost money, arguing that the former Fed Chairman’s book would be better titled The Courage to Print, rather than The Courage to Act. Stockman ended with a dire warning for investors:

This market is going to collapse, and if it doesn’t I’ll shave my beard. It’s absolutely going to collapse, because when you give traders and speculators free money overnight, they just roll it. They roll it and roll it. They take every kind of position…”

Highlights from the interview:

“What you heard [from Ben Bernanke] was unadulterated nonsense. On Christmas Eve [of] 2000 after the dot-com bust, the interest rate was 6.5%. In the next 30 months, they took it down to 1%. If you look at originations of mortgages, it grew from a $1.5 trillion rate to $5 trillion annual rate by the spring of 2003. The housing bubble was off and running. It was fueled by the Fed, and then the Fed kept it going by basically the Greenspan put and all the Goldilocks and all the rest of it. To say the Fed had no role in the disaster we had in the mortgage market and the growth in credit, which in that period went from $28 trillion to $55 trillion – to say the Fed had nothing to do with that is just plain nonsense. That’s why [Bernanke’s] book should be titled ‘The Courage to Print’. My view is that it didn’t take any courage to print. It didn’t take any courage to flood Wall Street with zero cost money…

“He should have let AIG go down… The ramifications would have been simple. All of the insurance companies were solvent at AIG. They would have been taken over by their state regulators. What was insolvent was their holding company…

“This market is going to collapse, and if it doesn’t I’ll shave my beard. It’s absolutely going to collapse, because when you give traders and speculators free money overnight, they just roll it. They roll it and roll it. They take every kind of position…”