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Ben Bernanke and his Terrifying Toolkit

May 6th, 2009
In his testimony before the congressional Joint Economic Committee, Federal Reserve Chairman Ben Bernanke repeated an earlier prediction that the severe recession in the U.S. economy would end in the current year. Typically, Bernanke offered all kinds of qualifications, just so he would not be seen as too optimistic, thereby eroding all credibility. Nevertheless, the Fed Chairman is now firmly on record as forecasting that the worst impact of the Global Economic Crisis upon the American economy will recede in 2009. And as the foremost expert on monetary policy and economics in all the land, this self-proclaimed genius (as witnessed on the CBS 60 Minutes propaganda segment on Bernanke) is someone we should all pay attention to; that goes for every parsed word flowing from his lips.
Before becoming overly indulgent in the gospel of Ben Bernanke, let us take a brief trip down memory lane, to the year 2007. Then, too, the Fed Chairman testified before the Joint Economic Committee. And this is what he had to say, just as the first inklings of a subprime mortgage crisis were percolating. Bernanke, when asked about the ramifications of this threatening disaster to the overall health of the nation’s economy, replied that it was “likely to be contained.”

Likely to be contained? No economic forecast has ever been so catastrophically flawed as Ben Bernanke’s utterance before the Joint Economic Committee. And that was by no means the only wrong prediction uttered by Ben Bernanke, as the subprime crisis morphed into a full-blown financial meltdown, leading to the Global Economic Crisis. The track record established by Ben Bernanke in predicting the consequences of an unfolding economic crisis of unprecedented global ferocity has been downright calamitous. Yet this same deficient analyzer of economic phenomena remains as chairman of the Fed, with unchallenged powers to set monetary policy.

As the subprime crisis became something much worse, Bernanke adopted a slightly different tack in his public posture. Rather than rosy forecasts, he boasted about the lavish toolkit that the Fed possessed. “We have many tools in our toolkit,” boasted Bernanke on more than occasion, cheerfully promising to use all the tools he felt were necessary.

The vocabulary that the Fed Chairman has succumbed to I find absolutely fascinating. Massive monetary decisions that are risky in the extreme, and will likely have intergenerational consequences, become mere “tools.” The consequential becomes the ubiquitous.

Bernanke and the Federal Reserve have been in panic mode, as the financial system became unglued. Massive quantitative easing has flooded fiat liquidity into America’s battered economy, buying a short-term respite at best, and at the cost of hyperinflation down the road. Most troubling, and often in total secrecy, the Fed has been bailing out Wall Street, above and beyond the TARP program being managed by the Treasury Department. Since last September and the bankruptcy of Lehman Brothers, the Fed’s balance sheet has doubled to more than $2 trillion. Most troubling is the quality of that balance sheet, which has historically been composed primarily of Treasuries. Now, however, at least 75% of the Federal Reserve’s balance is in the form of questionable assets, such as mortgage backed securities. In effect, Ben Bernanke has transformed the Federal Reserve’s balance sheet into the nation’s largest toxic dump. It may be only a matter of time before the Fed approaches Congress-and U.S. taxpayers- for a bailout of its own.

While Bernanke may still inspire confidence from President Obama, he frankly scares the hell out of me. Isn’t it time we took away the toolkit from this disaster-prone Fed Chairman, before it is too late?

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