Bernanke can’t be the sorcerer behind every ill
By Agnes T. Crane and Christopher Swann
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
So far, Ben Bernanke hasn’t turned anyone into a newt. Yet detractors do seem to think the Federal Reserve chairman’s policies have bewitched the world in realms far beyond central banking. Bernanke is influential and his policies open to criticism. But not every global problem can be laid at his door.
The low point came last week when he had to defend the U.S. central bank’s ultra-easy monetary policy against grumbling that it was causing food prices to spike and therefore fomenting unrest in nations like Tunisia and Egypt. In reality the Fed’s massive bond-buying exercise, known as quantitative easing, is hardly what’s on the lips of those protesting in Tahrir Square.
It’s even a stretch to argue that quantitative easing has bailed out cash-strapped U.S. states — the contention of Joe Walsh, a congressman from Illinois, during a hearing on Wednesday. The Fed may be trying to keep interest rates low, but state and local governments are paying on average almost a percentage point more in interest for debt maturing in 10 years than they were when the most recent QE exercise began in November.
In fact, to listen to Bernanke’s critics there are few problems for which the Fed chief can’t be held responsible. By their logic, lax U.S. monetary policy is solely to blame for emerging inflation in Asia, rising protectionism and asset bubbles in emerging markets.
Despite the Fed’s undoubted influence, other powerful forces are surely at work. Bernanke’s Washington neighbors in the White House and in Congress are perpetuating America’s fiscal problems. On the other side of the world, the Chinese government is keeping its currency unsustainably strong. And healthy growth across Asia and swaths of Latin America is bound to create demand for energy, food and commodities — and therefore generate upward pressure on prices — regardless of U.S. monetary policy. And repression, failed domestic policies and local power struggles are far more credible factors in Middle Eastern unrest.
Even so, in the eyes of many Bernanke isn’t helping — and the Fed’s massive and untested QE program could certainly backfire. But by giving him the full pointed hat and broomstick treatment, critics are suggesting other big cracks in the system can be magicked away. That’s an illusion that can’t last.