The same Nobel Committee that once awarded Henry Kissinger its peace prize just awarded its economics prize to Ben Bernanke, the architect of the quantitative easing experiment that is plunging the world economy into its current nightmare.
What’s next? A peace prize for Vladimir Putin? A medicine prize for the Wuhan Institute of Virology?
The Nobel Committee did not directly award Bernanke for his disastrous tenure as chairman of the Federal Reserve nor his work produced while cashing out to Citadel, the hedge fund famous for its big short squeeze of GameStop. Rather, Bernanke was lauded for his 1983 paper on the Federal Reserve’s role in exacerbating the Great Depression.
MANUFACTURING GAUGE FALLS TO LOWEST LEVEL SINCE START OF PANDEMIC AS FED HIKES KICK IN
Building upon the central thesis of the great classical monetarists Milton Friedman and Anna Schwartz, Bernanke’s research argued that the Fed had been insufficiently aggressive, letting banks fail and the money supply tighten during a profound economic contraction. It was this research that informed Bernanke’s delusion that zero ought not to be a limit for interest rates during a monetary intervention. Instead, the Fed would inject trillions into the economy beyond that point. His fed, beyond just stabilizing the mortgage industry in the immediate aftermath of the Great Recession, went on with endless quantitative easing, purchasing billions, and then trillions, in Treasury bonds from the big banks.
It is that landscape of near-zero interest rates and QE exacted over a decade and during the longest bull market in history, that the Fed began its final stage of the experiment at the beginning of the pandemic: printing 40% of all dollars in circulation in the short time since.
We all know how that story ends. Despite the economy contracting for two consecutive quarters, usually called a “recession,” inflation has hit the highest point since Paul Volcker was forced to jack up interest rates into the double digits. Under Jerome Powell’s leadership, our own interest rates are only slated to hit 4% by the end of the year, and even so, global markets inflated and accustomed to the Bernanke treatment are on the precipice of collapse.
It’s not as though the inevitable consequences of Bernanke’s hubris eluded all of his contemporaries. In fact, it was none other than Schwartz who authored the definitive case against a second term as Fed chairman for Bernanke all the way back in 2009.
“Mr. Bernanke seems to know only two amounts: zero and trillions,” Schwartz wrote for the New York Times at 94 years old. “Before 2008 there were only moderate increases in the Federal Reserve’s aggregate balance sheet numbers, but since then the balance sheet has exploded by trillions of dollars. The increase was spurred by the Fed’s loans to troubled institutions and purchases of securities. Why is easy monetary policy such a sin? Because in such an environment, loans are cheap and borrowers can finance every project that they dream up. This results in excesses, and also increases the severity of the recession that inevitably follows when the bubble bursts.”
More than a decade later, Schwartz is dead and Bernanke is a millionaire, enriched not just during his government service but again at Citadel and Pimco — another investment firm that “made a killing” partnering with the Fed’s bond-buying rampage. The rest of us are stuck dealing with the fallout.
