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Ben S. Bernanke Nominated As Chairman Of Federal Reserve

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After reading through Bernanke's paper on "Inflation Targeting", my conclusion is that the Fed will remain pretty much unchanged under Bernanke.

Control of inflation as a primary responsibility: The Fed is always being pulled in two directions. On the one hand, some people don't want inflation, on the other hand other people want inflation, and hope that it looks like growth and prosperity in the short term. In the Greenspan years we have seen less inflation (not compared to the 100 year averages, but compared to the couple of decades before).

Transparency: Regardless of what the Fed is going to do, one would prefer that it is predictable rather than unpredictable. That way, one can plan better. Under Greenspan, the Fed started publishing minutes of key meetings. This made things a little clearer. In addition, the Fed started hinting at what it thought it was going to do next.

Bernanke's view of "Inflation Targeting" is not a radical step. It merely firms up the same themes, It would formalize the idea that inflation-control is the primary task of the bank, allowing the bank to resist requests by politicians to print more money. A formally-announced "inflation target" range would also add a little more transparency to the actions of the bank and would add predictability as to its future actions.

Basically, what one can expect from the Fed is more of the same.

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Bernanke's most famous comment: "The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

The Fed Cannot Fix Itself

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Yes, people remember Bernanke as someone who was ready to fight deflation by dropping money from helicopters. A humourous comment, but the point is clear. From this, one gathers that Bernanke's "targetted inflation" idea is not some form of the Fed being more rigid than it is today or being tougher on inflation. It's merely a call for marginally increased transparency. As I said: more of the same.

The article you linked to has the following figures, comparing real GDP growth under various Fed chairmen:

Burns (1970-'78) : 3%

Volcker (1979-87) : 2.8%

Greenspan (1987- 2005): 3.1%

That illustrates the "more of the same" theme pretty well.

Note, however, that (according to the Bureau of Labor Statistics inflation calculator), the the same three periods, the annual CPI inflation rates (averaged out over the periods) are 6.7%, 5.7 and 3.3% respectively.

I doubt this downward trend will continue.

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  • 2 weeks later...

I think the Federal Reserve, and the concept which caused its establishment, are totally misguided and it doesn't make any difference to me who is head of it.

I think the Federal Reserve should be abolished, and we should go back on to a precious metal standard.

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Sure the Fed should be abolished. That does not mean the Fed has no impact on your life.

Unquestionably, it does have an impact upon our lives.

Virtually all of it negative, in my experience.

Is there anyone who can cite an example of how it is the Federal Reserve has had a major positive impact upon our lives?

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  • 2 weeks later...
Cato Chairman William Niskanen On the Nomination of Ben Bernanke:

Tuesday 25 October 2005

The confirmation hearings on the appointment of Ben Bernanke to be chairman of the Federal Reserve Board should focus on four issues:

1. What is his interpretation of "the inflation rule?" Specifically, should the Fed increase the fed funds rate in response to an increase in inflation that is the result of a temporary reduction in supply, as is now the case?

2. How should the Fed respond to a financial crisis? What are the criteria for deciding whether to respond?

3. Bernanke has previously stated that the Fed should not tighten in response to a rapid increase in prices in a specific sector, such as the equity bubble of 1998-2000, or the current housing bubble. But what if these "bubbles" have been partially financed by a rapid increase in total demand?

4.How does he interpret current economic conditions? Specifically, should the Fed tighten in response to the recent increase in the inflation rate?

http://www.cato.org

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The hearings are underway now. From the PBS report, Bernanke's focus was that he would keep things pretty much the same. Paraphrasing....

When he was asked about "inflation targeting", he said he would not make any sudden changes in Fed methodology and that he would not proceed anyway unless he had established consensus.

When questioned about whether inflation targeting would allow the Fed to respond quickly to events in the economy, he said that any type of inflation targeting should be flexible enough to be a long-term rule: the Fed need not attempt to control the inflation number in any particular year so much as it needs to do so across a span of years.

He was also asked about the goal of the fed being inflation-control, and how about the goal of full-employment (which is code for letting some inflation into the system). He said that while inflation control was the primary focus he did not think it should be done at the cost of the full-employment goal.

He's either a Greenspan clone, or he wants us to think that's what he is.

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Great Article By Walter Williams on the Fed:

http://www.gmu.edu/departments/economics/w.../inflation.html

So what about the president's nomination of Ben S. Bernanke as Alan Greenspan's replacement? I know little or nothing about the man. What I do know is that it's not wise for one person, or group of persons, to have so much power over our economy. Here's my recommendation for reducing that power: Repeal legal tender laws and eliminate all taxes on gold, silver and platinum transactions. That way, Americans could write contracts in precious metals and thereby reduce the ability of government to steal from us.
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  • 2 years later...

From Bernanke's testimony today (as reported by IHT):

A number of analysts have raised the possibility that fiscal policy actions might usefully complement monetary policy in supporting economic growth over the next year or so. I agree that fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone. But the design and implementation of the fiscal program are critically important. A fiscal initiative at this juncture could prove quite counterproductive, if (for example) it provided economic stimulus at the wrong time or compromised fiscal discipline in the longer term. To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so. Stimulus that comes too late will not help support economic activity in the near term, and it could be actively destabilizing if it comes at a time when growth is already improving. Thus, fiscal measures that involve long lead times or result in additional economic activity only over a protracted period, whatever their intrinsic merits might be, will not provide stimulus when it is most needed. Any fiscal package should also be efficient, in the sense of maximizing the amount of near-term stimulus per dollar of increased federal expenditure or lost revenue. Finally, any program should be explicitly temporary, both to avoid unwanted stimulus beyond the near-term horizon and, importantly, to preclude an increase in the federal government's structural budget deficit. As I have discussed on other occasions, the nation faces daunting long-run budget challenges associated with an aging population, rising health-care costs, and other factors. A fiscal program that increased the structural budget deficit would only make confronting those challenges more difficult.
The cynical paraphrase would be: give people a short-term shot of spending money, but don't cut taxes.
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Was listening to the whole thing on CNBC earlier today. By far the funniest thing I've ever heard in one of these testimonies was when the woman democrat (can't remember the name or where she's from) was trying to ramp up support against Wall Street for securitizing these mortgages. She said something like "Now, I know Mr. Bernanke that you were the CEO of Goldman Sachs before you came to Washington." The room begins to laugh and Bernanke interrupts and says "I think you're thinking of the Treasury Secretary mam." She says "Oh, then were are you from?" Bernanke says "I used to be the CEO of the Princeton economics department." The room erupts in laughter. She tries to reply smugly, "Oh, well that's good to know."

I don't know how Bernanke can stand being in front of all those idiots.

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