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Bernanke's Blame Game Sends Fingers Flying


The biggest case yet of the pot calling the kettle black.


Bernanke Incapable of Learning

Bernanke has proven over time to be incapable of learning anything. He sticks with his theories no matter how flawed they are.

Here is a paragraph that proves it:

Is there any role for monetary policy in addressing bubbles? Economists have pointed out the practical problems with using monetary policy to pop asset price bubbles, and many of these were illustrated by the recent episode. Although the house price bubble appears obvious in retrospect -- all bubbles appear obvious in retrospect -- in its earlier stages, economists differed considerably about whether the increase in house prices was sustainable; or, if it was a bubble, whether the bubble was national or confined to a few local markets. Monetary policy is also a blunt tool, and interest rate increases in 2003 or 2004 sufficient to constrain the bubble could have seriously weakened the economy at just the time when the recovery from the previous recession was becoming established.

Any economist who couldn't see there was housing bubble brewing is straight up incompetent. That fact alone makes Bernanke incompetent. If the rest of the Federal Reserve couldn't see it, they're incompetent as well.

Moreover, in spite of the enormous crash we just went through, Bernanke is spouting nonsense about what might have happened if the Fed would have acted sooner in 2002 or 2003. How much damage does it take for Bernanke to admit the Fed blew it?

It's galling to read his self-serving platitudes.

Asymmetric Worries

If the Fed is so worried about using "blunt tools", then why is that worry so asymmetric? Where was the concern in 1999 when Greenspan slashed rates over a ridiculous Y2K scare?

Where was the worry in 2002, 2003, 2004, 2005, 2006, or 2007?

Note how easily "blunt instrument" worries go out the window when there's a crisis or even perceived crisis. However, there's never a worry over the damage caused by holding rates too low, too long.

Bernanke, like Greenspan, likes to blow bubbles. Bernanke, like Greenspan, likes to blame others for his mistakes.

Bernanke's Magic Mirror

Without saying so directly, Bernanke just looked straight into the mirror, and pointed his finger not at himself, but rather at a reflection of Barney Frank for Congress' failure to regulate.

To be sure, Fannie Mae (FNM) and Freddie Mac (FRE) made the problem much worse and we can thank Barney Frank in particular and Congress in general for that. We can also thank Barney Frank for countless other affordable housing schemes that made matters worse. Year in, year out, Barney Frank was one of the biggest congressional contributors to the mess.

Barney Frank surely deserves the finger, but not from hypocrites like Bernanke who fail to see their own bigger role in cresting this mess.

And so, with the help of Bernanke's magic mirror, this is the biggest case yet of the pot pointing the finger at the kettle, calling the kettle black.

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