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Ben Bernanke Worship Is a Cult of Hypocrisy


The hypocrisy is not really what's scary about markets' Bernanke fixation, though. What's scary is that the obsession shows investors have no real faith in economic recovery.

I have never met Ben Bernanke, but I would wager strongly that he is a mortal man like the rest of us. He nicks himself shaving, fumbles for lame excuses when his wife asks about that screen door he promised to fix, fears he is being cheated by car mechanics, and not infrequently wonders whether he said or did exactly the right thing.

You would not guess at any human limitations from the securities markets, though, which lately have elevated the Federal Reserve chairman to the level of cargo cult deity. Bernanke seems to hint, perhaps, that he may curtail the flow of manna (read: free money) and the simple folk in the global trading village rend their garments, wail, and repent. Bernanke says OK, I will keep the manna flowing until you are out of the desert (40 years maybe), and the fatted calves return to the spits. The lyre and tambourine sound in celebration late into the night. The market magically recoups its losses.

This is a pretty sad spectacle, and not only because Bernanke is a lame-duck central banker, pointedly invited by Barack Obama to resign once his current term is up next January. For one thing, the Bernanke / quantitative-easing fixation displays massive hypocrisy, hardly a surprise from the financial world but worth noting nevertheless.

There is a scene in Babbitt, Sinclair Lewis' classic evisceration of the American business class in the 1920s, where hero George Babbitt declaims righteously at some civic function or other about the benefits of Prohibition. He then goes next door to a speakeasy for a drink. Babbitt and his mates rationalize that Prohibition is a good thing for the lower orders, who would be wallowing in the gutter without it, but it need not apply to men of moral fiber like themselves.

Similar doublethink is emanating from Wall Street 90 years later. Everyone seems suddenly to have forgotten that voices of business from Larry Kudlow to Paul Ryan and beyond have spent the last five years frothing against the evils of loose money as promulgated by the "socialist" Obama and pointy-head academic Bernanke. That the Tea Party took over the House of Representatives with promises of renewed financial orthodoxy, even the gold standard if necessary.

When it comes to some overextended foreign clime -- whether Ireland, Egypt, or Indonesia -- US financiers are happy to purse their lips and demand austerity. The folks out there will just have to suffer for their sins until redemption. But the moment the Fed chairman hints of something similar back home, some sobriety that Wall Street robustly supports in theory, investors go on a virtual strike until he backs down.

The hypocrisy is not really what's scary about the markets' Bernanke fixation, though. What is scary is that the obsession shows investors have no real faith in economic recovery. Who would? The US unemployment needle remains stuck on 7.5% despite healthier job growth. No one knows if the housing rebound can survive mortgage rates higher than 4%. Europe is mired in indefinite no-growth mode. Abenomics could crash and burn spectacularly in Japan. The Chinese miracle is showing its seamy side with a slowdown and a banking crisis. A different emerging market erupts in street demonstrations every week. It's a fragile-looking world out there.

But beyond all these specific indicators, people have no faith in the recovery because the problems that created 2008 and its aftermath have not visibly been fixed. America still feels captive to a runaway financial sector that will bend Washington to clean up its mess again next time. Europe, for all its resolution on budgetary austerity, has not cracked its core problem of sclerotic labor markets and lagging productivity and innovation. China has not addressed its grand contradiction between free markets and totalitarian politics, and does not want to.

It may be that the many piecemeal changes governments and regulators have enacted post-Lehman will end up doing aggregate good eventually. But there have been no grand symbolic purgative acts to draw a line under the abuses of the past and point the way forward: no Securities Exchange Act, no Volcker-Reagan crushing of inflation, no Sarbanes-Oxley even.

It's not surprising that most people, investors or not, wonder whether the crisis is really over or just resting before a renewed onslaught. Yet the stock market has been acting as if it is over, bidding up the S&P 500 (INDEXSP:.INX) by 25% over the past year. Thus the morbid sensitivity that any less-than-optimal remark by Mr. Bernanke could bring the whole edifice down.

It is not just about Bernanke. Whatever the chairman does or does not do, we are heading into a rocky period.
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