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Wednesday, October 28, 2009

Ben Bernanke Saved the Day?

The final verdict is in. The venerable “progressive” Atlantic has spoken. Ben Bernanke and his “radical interventions,” the publication recently claimed, “may have saved the day.” Yet there are doubters out there; I’m one of them.

Unfortunately, one of the main characteristics of modern “progressives” is their smug self-assurance that they are intellectually and morally superior to everyone else, which comes to the fore in the latest magazine’s “Brave Thinkers” piece. The publication boldly (and arrogantly) declares:

For more than 150 years, the Atlantic has told the stories of people who commit acts of moral and intellectual bravery by espousing unpopular or controversial positions. In a special issue of the magazine, the editors have chosen 27 leaders — from business and politics to science and media — who embody this great tradition today. These are people who are risking careers, reputations, and fortunes to advance ideas that upend an established order.

Ironically, the magazine then lists a number of people who only can be considered liberal-left “establishment” people, from Arthur Sulzberger to Ralph Nader. One of those “thinkers” is Ben Bernanke.

Besides claiming that Bernanke’s actions are “radical,” the Atlantic also declares the following:

He dropped target interest rates to near-zero for the first time in history; made trillions of dollars in government cash available to financial institutions; expanded the Fed’s lending and relaxed its collateral requirements; bought up billions of dollars in securities backed by consumer debt and mortgages; prevented the collapse of AIG, Fannie Mae, and Freddie Mac; and somehow found time to bear the made-for-TV harangues of financially illiterate members of Congress. The particulars of the Fed’s interventions remain lamentably shielded from oversight. But in the Great Recession, Bernanke’s forceful approach may have spared the world from a true nightmare. [Emphasis added.]

All of this radicalism can be summed up in one word: inflation. That is correct. Ben Bernanke’s “radical” actions have been nothing more than jacking up the easy-credit regime that brought us into this crisis in the first place. As for the “financially illiterate members of Congress,” the article obviously is referring to Ron Paul and other critics of the Federal Reserve System. Whenever Paul questions Bernanke at committee hearings, the contempt on Bernanke’s face is obvious. Like the editors of the Atlantic, Bernanke’s visage declares: “How dare you, a mere fool, question my greatness. Don’t you see what I have done? I have saved all of you, and you, Mr. Austrian Economics, are ungrateful and utterly ignorant!”

Yet it is Bernanke and his “progressive” supporters who are “financially illiterate.” Literally everything included in that worshipful portrayal is nothing more than the implementation of inflation. The only thing that Bernanke has done is to print money or engage in its equivalent.

Take his “bold” step of “relaxing collateral requirements,” for example. Why is the system in crisis in the first place? It is because the government “encouraged” lenders to relax their own lending requirements, and when the inevitable defaults became systematic, the entire U.S. financial system went into crisis.

In other words, the Atlantic heaps praise on Bernanke for doing the very things that created the financial crisis in the first place. If that is “brave thinking,” then anyone suffering from a hangover who imbibes in the “hair of the dog solution” is a “brave thinker.”

Bernanke did not “save” AIG, GM, and Fannie and Freddie. He nationalized them, turning them into nothing more than dependents of the financial welfare state. The Fed chairman has “saved” nothing; he only has postponed the day of reckoning, and his interventions guarantee that this inevitable day will be worse than it ever needed to be.

Instead of being “brave,” Bernanke has been reckless, just like a young driver playing “chicken.” There is a huge difference between bravery and bravado, and Bernanke’s actions reflect the latter not the former.

  • Dr. William Anderson is Professor of Economics at Frostburg State University. He holds a Ph.D in Economics from Auburn University. He is a member of the FEE Faculty Network.