Wednesday, 29 July 2009

Ben Bernanke: Adrift without a clue [updated]

As a bookend to the non-answering of Queenbo’s question to economists (story here yesterday), we’ve now got the diametrical opposite to Peter Schiff’s now famous ‘Peter Schiff Was Right’ video: Ben Bernanke’s ‘I Don’t Have a Fucking Clue’ video.  Here it is:

While Schiff was predicting the deep recession that would follow the bursting of the housing bubble, Bernanke didn’t even know there was a bubble going on – or realise that his own organisation was largely responsible for it.

Now just to make sure you don’t miss a word, Lilburne has both transcript and analysis – and a point worth taking.  In this video, “Bernanke is shown to have been just as embarrassingly wrong as Schiff was uncannily right”; but that’s not because Bernanke is a moron – he’s a very bright guy – but because of “their differences in economic understanding.”

Schiff’s economic understanding is Austrian.  Bernanke’s is mainstream.  There’s the story.

UPDATE: Robert Blumen gives an example of a blatant mainstream error committed by Bernanke right out in the open here – the same error, I’ll wager, that many NZ home-owners make: i.e., the idea that a strong economy necessarily supports rising house prices.

As Blumen points out, we certainly shouldn’t expect that to be the case with a strong economy and food prices, would we, so why expect it with house prices?  And in any case, shouldn’t a strong economy support generally falling prices?

[Blumen’s] point is not that it is impossible for rising incomes and rising home prices to co-exist, only that it requires a very special set of conditions and that, in general, we should expect the opposite. Bernanke's blithe statement of the obvious at best requires further explanation and is at worst illogical. It is more likely, as Reisman says, that the cause is an expansion of credit.


  1. Bernanke spent an hour or more (shown as part of the MacNeil NewsHour on PBS) the other day being grilled at a townhall meeting by ordinary men and women, many of whom were small business owners.

    During the entire period the "deer in the headlights" look never left his face. He was made visibly uncomfortable particularly by a plastics distributor who asked a pressing question about why businesses like AIG, et al got bailed out, i.e. why they are "too big to fail" but his business can go under.

    The Fed Chairman's answer was the usual "We had no choice. If we hadn't the entire system would have failed." etc. His recommendation, after whining about "not having the tools to prevent Lehman from going under" was to suggest "we need more laws, a structure that allows us to blah, blah, blah."

    It's always a little shocking to see a man who has taught at Princeton be so stupid. What remains a mystery is why men of intelligence like Bernanke absorb and accept the blatant nonsense that a healthy-minded college freshman could poke big holes through without effort.

    At some point, such men choose simply to break with reality and accept the dogma they're taught. But why they do will probably remain unknown for some time to come.

  2. Correction: that should read "the Lehrer Newshour." MacNeil has been off the show for years now. (It used to be the MacNeil/Lehrer Newshour and is, despite its liberal bent, the most intelligent newscast on the air for decades now.)

  3. Thanks for the US perspective Jeff

  4. RealClearPolitics has posted a link to the transcript of the show:

    Bernanke Forum

    "The nonpartisan organization Kansas City Consensus helped us identify and select them. Those who will ask questions are sitting there in the center section directly in front of Chairman Bernanke and me. They have been pre-interviewed by NewsHour staff members about what they have on their mind to ask the chairman.

  5. The article: Ben "Systemic Risk" Bernanke proves that Bernanke knowingly maintained a strict monetary policy long after he knew of the sub prime problem as he knew it would cause of the "Depression".

    It shows that he probably engineered it on purpose!

    If you want to sleep tonight, Don't Read It!

    "In contradiction to the prevalent view of the time, that money and monetary policy played at most a purely passive role in the Depression, Friedman and Schwartz argued that "the [economic] contraction is in fact a tragic testimonial to the importance of monetary forces" (Friedman and Schwartz, 1963, p. 300).

    The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October.

    In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.

    Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930."

    Governor Ben S. Bernanke
    Money, Gold, and the Great Depression.
    At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University,
    Lexington, Virginia.
    March 2nd, 2004

    You can read also: Preparing for the Crash, The Age of Turbulence Update: 30/07/09., which tries to accomplish Greenspan Mission Impossible:

    "That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer.

    Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances.

    Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.


    The clear evidence of underpricing of risk did not prod private sector risk management to tighten the reins.

    In retrospect, it appears that the most market-savvy managers, although conscious that they were taking extraordinary risks, succumbed to the concern that unless they continued to "get up and dance", as ex-Citigroup CEO Chuck Prince memorably put it, they would irretrievably lose market share.

    Instead, they gambled that they could keep adding to their risky positions and still sell them out before the deluge. Most were wrong."

    Alan Greenspan
    The Age of Turbulence: Adventures in a New World [Economic Order?].

    The Age of Turbulence: Plea for a New World Economic Order. explains the nature and causes of economic depressions and proposes a plausible alternative solution.

  6. Shalom,

    The primary cause of the crash was not the necessary contraction (you can only keep inflating so long before you've got to pull the horns in) it was the previous profligate credit inflation, during which the bubble was blown up and all the malinvestments were created.

    In other words, the damage was done in the boom; the contraction was simply reality reasserting itself, as it always will.

    I won't rehearse what's already been said here many times on this already; instead why not check out the Mises Institute's Bailout Reader, the Ayn Rand Center's Financial Crisis page, and Tom Woods masterful book-length summary Meltdown.

  7. My only 2 questions are as follows:

    If you were Ben Bernanke in 2005/2006, what would you have done?

    If you were Ben Bernanke in 2008, what would you have done?

  8. To which may answers are as follows:

    Q: If you were Ben Bernanke in 2005/2006, what would you have done?
    A: Abolish the Fed and resign.

    Q: If you were Ben Bernanke in 2008, what would you have done?
    A: Abolish the Fed and resign.

    How's that?

  9. The following YouTube testimony of Ben Bernarke is the best grilling of him by a Congressman. Watch Mr. Bernarke fumbled and mumbled.

    Congressman Alan Grayson grills Ben Bernanke on Foreign Lending ...

    Congressman Alan Grayson also quized Bernarke about a $US 9 billon for New Zealand.

  10. PC

    You score 100%. Both of your answers are correct. That's exactly what he should have done.

    Did you realise that most economists would fail that test and be unable to answer those two simple questions? Amazing, but true.



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