America is a resilient nation, with far healthier demographics than China, Japan, Korea, Germany, Italy or Russia. The storm will blow over.
Ambrose Evans-Pritchard
Telegraph
At each stage of the great 20-year debt bubble we were told by the US Federal Reserve that it was not the job of central banks to worry about the dotcom boom or the surging cost of California property or the price of any other asset in the grip of credit fever.
A Princeton professor named Ben Bernanke was chief theorist for this doctrine. At the Fed’s Jackson Hole conclave in 1999 he gave a speech laden with data arguing that central banks should ignore asset booms and focus exclusively on inflation.
Fed chair Alan Greenspan liked the speech so much that groomed Bernanke for the next vacancy at the Fed Board in Washington. He had a last found an academic willing to clothe his own proclivities with Ivy League respectability.
Yet after leading America and the world into calamity with this seductive mischief – which overlooked the well-documented risks of credit seizures once a debt bubble pops – we are now told by Bernanke that the purpose of printing more money is to push up house prices and feed Wall Street.
“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending,” he wrote in the Washington Post. So there we have it, the `Bernanke Put’ in open daylight, the affirmation of asymmetric monetary policy. Let booms run unchecked: shield investors from loss when things go wrong.
This is at least honest, unlike Bernanke’s suggestion that US inflation is now so low that it may “morph into deflation” unless the Fed takes out insurance with $600bn of fresh bond purchases — QE2 to you and me.
“The Fed’s claim that there is a risk of deflation should embarrass it,” said Professor Allan Meltzer, author of the magisterial A History of the Federal Reserve.
Yes, there was a risk some months ago that deflation would creep up on America. This danger has receded. The Dallas Fed’s “trimmed mean” index of PCE inflation has nudged back up to 1pc.
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