Bernanke can’t be the sorcerer behind every ill

February 11, 2011

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.


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I can agree with the statement that Bernanke is not the source of all problems, as this would give him too much weight. The Western World’s success was built on the base of “The Rule of Law”. Over the past 3 years, the spirit of this law has been trampled and violated to a degree that was inthinkable just a few years back. The fact that the cost of risk is loaded onto the tax payer and those that profited continue to do so without ever having to pay for the consequences of taking too much risk is undermining the Economic Model of the Western Society in yet undetermined ways. And Bernanke was part of this corrupt construct that solves the problem of too much debt by more and more “money printing” creating additional bubble blowing and further increases of debt far in excess of actual economic growth (a typical ponzi scheme). It compares to healing an alcoholic with a bottle of Jack Daniels. And yes, Bernanke is part of the elite that continues an unsustainable policy. He should know better and I am certain some of these people in charge know better but keep quite and hold their fingers crossed. Shame on them!

Posted by linushuber | Report as abusive

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Posted by Tweets that mention Bernanke can’t be the sorcerer behind every ill | Analysis & Opinion | — | Report as abusive

‘On the other side of the world, the Chinese government is keeping its currency unsustainably strong.’ ?

Posted by fxr | Report as abusive

Inflation will kick into the american economy which will not
help the present housing market or food prices. But it may help the banks. It is the medicine that will be needed to cure the economy, Bernanke knows and so does everyone else that the Feds will not be able to keep the interest rates low for much longer, I do not envy that man’s position but I still have respect for him. It takes a real captain to sail a ship through a storm, and I can see a tempest on the horizon……

Posted by hexagon | Report as abusive

Surely, in an open economy the capital can flow from areas of low interest rates to areas of high interest rates. If for example, interest rates are 2 percent in US and 8 percent in India, capital will flow from US to India. It is certainly possible that the massive injection of money in the US economy is causing inflation in certain parts of the world.

Posted by Variance | Report as abusive

“Predicting the future is easy; it’s figuring out what to do now that’s hard”.

Bernanke has to do what he is doing, it’s required of the Fed, and though I respect the intelligence of some of his critics, and believe they are correct on him eventually blundering on inflation, he has blunt tools and not much choice. From where I sit he is the only one that is actually taking action to improve American export competitiveness. He is the only one actually doing something to reduce unemployment. After QE2 started we began to see a much more accommodating China. Ultimately, what he is doing is an indictment against our political leadership, not against the Fed.

Posted by ARJTurgot2 | Report as abusive

Just remember, if the dollar were still worth 1/35th of an ounce of gold as it was from 1935 to 1971, the price of oil today would be lower than it was in 1967.

So, when oil hits $100 a barrell and gasoline prices rise back toward $4.00 a gallon, don’t blame, don’t blame OPEC, or China, or greedy oil companies or profligate Americans, blame the Sheiks of the FOMC. -of-the-fomc/

Posted by CharlesKadlec | Report as abusive

Well the new Know-Nothings have to blame somebody and since the Know-Nothings are Republicans and/or Tea Baggers then they don’t want to acknowledge that is was Republican policies that brought about the mess we are in.

Then there’s the subset of wackjobs that wants a return to the gold standard. Yeah right, we do that it’ll make the Great Depression look like a walk in the park.

Bernanke’s a Republican but they’ll just call him a RINO and toss him.

America has become far too stupid for it’s own good.

Posted by affableman | Report as abusive