Saturday, March 28, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Good riddance to Bernanke’s tight-money policies

By
From page A8 | February 03, 2014 |

The Wall Street Journal is on the hard-money side of the debate over recent monetary policy. But its editorial on the departure of Ben S. Bernanke as chairman of the Federal Reserve articulated a conventional wisdom that transcends that debate.

The consensus assessment is that the Fed under Bernanke’s leadership kept interest rates too low during the boom years of the last decade, which contributed to the financial crisis, but when the crisis hit, the Fed’s heroic efforts staved off a reprise of the Great Depression. The Journal allows that time will tell about the post-crisis policies, but expresses skepticism.

There’s another view of the Fed’s role in the crisis, though, that has been voiced by economists such as Scott Sumner of Bentley University, David Beckworth of Western Kentucky University and Robert Hetzel of the Richmond Fed. They dissent from the prevailing view that the Fed has been extremely loose since the crisis hit. Instead, they argue that the Fed has actually been extremely tight, and that when its performance during the crisis is measured against the proper yardstick, the central bank emerges as the chief villain of the story.

In the second half of 2008, housing prices, many commodity prices, inflation expectations and stocks all suggested deflation was coming. Fed officials, though, kept talking about backward-looking measures of inflation that made it look high. Their hawkish pronouncements effectively tightened monetary policy by shaping market expectations about its future direction. In August 2008, the Fed minutes explicitly said to expect tighter money. Even after Lehman Brothers Holdings collapsed the following month, the Fed refused to cut rates and fretted about inflation (which didn’t arrive). A few weeks later, the Fed decided to pay banks interest on excess reserves, a contractionary move. Only then did it cut interest rates.

During the years of the “Great Moderation,” nominal spending (the size of the economy, measured without adjusting for inflation) had grown at a fairly steady rate. During the crisis, the Fed provided no indication that it would exert itself to continue that trend – and nominal spending started to fall at the fastest rate since the Great Depression. Lower expectations of future spending and income made for lower asset prices and higher debt burdens, adding to bank losses and making households less likely to consume and businesses less likely to invest. Another way of putting it is that the Fed increased the monetary base by enough to offset the financial industry’s troubles, but not by enough to offset the decline in velocity.

Bernanke’s Fed could certainly have done worse. It wasn’t as tight as the Depression-era Fed, or as the European Central Bank. But its mistakes made the crisis much worse and the recovery much more sluggish than it could have been. Bernanke doesn’t deserve all the blame for this performance – he may have been constrained by his colleagues or by the overall political environment – but he hasn’t acknowledged what the Fed got wrong, and neither have most of the pundits commenting on his legacy.

This analysis, again, is far from the conventional wisdom. But there is a precedent for that. In the early 1930s, many people worried that the Fed was being too loose, and only decades later did it become clear to almost everyone that it had really been too tight. Eventually, we may revise our view of the Bernanke era in the same way.

Ramesh Ponnuru is a Bloomberg View columnist, a visiting fellow at the American Enterprise Institute and a senior editor at National Review.

Ramesh Ponnuru

LEAVE A COMMENT

Discussion | 2 comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

  • The MisterFebruary 03, 2014 - 7:07 am

    How about good riddance to the for-profit, privately-owned, central bank mill-stone that has been around our collective necks for the past 100 years. (But no... most people love being a slave. Do you remember the Grace Commission found that not one nickel of your personal income tax goes to anything... not roads, not bridges, not the military... except to pay interest on the debt... most of it which is held by the Federal Reserve. In effect, ALL of the money you send to the IRS this April goes to the for-profit, privately-owned Federal Reserve. But you love being a slave, don't you!)

    Reply | Report abusive comment
  • Mike KirchubelFebruary 05, 2014 - 12:17 pm

    As discussed, it's 20%. I love that line too, but it's just not true and if you sucker people in using a falsehood, they will leave just as soon as they find out the truth. Stick with telling the truth about the Federal Reserve, it's just as bad. Fed funds rates rose quickly during 2005-6 cutting off potential home purchasers and popping the real estate bubble. They then reduced rates, too little, too late. Gee, just like in 1929 and the stock market bubble.

    Reply | Report abusive comment
.

Solano News

Fraisure Smith hearing delayed twice Friday

By Ryan McCarthy | From Page: A1, 10 Comments | Gallery

 
Luncheon honors women for their work to help others

By Susan Hiland | From Page: A1 | Gallery

Sheepdogs, handlers flock to Rio Vista for trials

By Susan Winlow | From Page: A1, 1 Comment | Gallery

 
 
Solano Rotary clubs honor top firefighters from across county

By Bill Hicks | From Page: A3 | Gallery

Eatery to host event to support child with cancer

By Glen Faison | From Page: A3

 
Project begins to brighten downtown Fairfield

By Susan Hiland | From Page: A3, 5 Comments | Gallery

 
Fairfield police log: March 26, 2016

By Susan Hiland | From Page: A9, 1 Comment

Suisun police log: March 26, 2015

By Susan Hiland | From Page: A9

 
Going home to mother

By Murray Bass | From Page: B10, 1 Comment

 
.

US / World

 
Jury says Silicon Valley firm did not discriminate

By The Associated Press | From Page: A3

 
Gov. Brown signs $1 billion water plan for dry California

By The Associated Press | From Page: A4 | Gallery

 
Public defender: San Francisco jail inmates forced to fight

By The Associated Press | From Page: A4

 
NY mayor: Someone may have ‘inappropriately’ tapped gas line

By The Associated Press | From Page: A5 | Gallery

Feds: Baltimore jail illegally keeping juveniles in solitary

By The Associated Press | From Page: A5

 
Autopsies determine children found in freezer were slain

By The Associated Press | From Page: A5

Fetus debate looms following charges in womb-cutting case

By The Associated Press | From Page: A5

 
Pugnacious Reid retiring, wants Schumer as Senate Dem leader

By The Associated Press | From Page: A6

Senate OKs Republican balanced-budget plan, following House

By The Associated Press | From Page: A6

 
‘Sopranos’ star’s apartment destroyed by blast

By The Associated Press | From Page: A7

 
Pilot who scared passengers sues airline

By The Associated Press | From Page: B7

‘Mad Men’ costumes, props head to Smithsonian

By The Associated Press | From Page: A7

 
US economy showing signs of durability

By The Associated Press | From Page: B7, 1 Comment

Mexico City businesses cite losses during Bond filming

By The Associated Press | From Page: A7

 
Comedian Gardell hosts game show version of Monopoly

By The Associated Press | From Page: A7

Nelson set to return to role as Coach

By The Associated Press | From Page: A7

 
German airline could face ‘unlimited’ damages for Alps crash

By The Associated Press | From Page: A10

Co-pilot appeared healthy, but may have hidden illness

By The Associated Press | From Page: A10

 
About 4,000 fishermen stranded on Indonesian islands

By The Associated Press | From Page: A10, 1 Comment

Warships move in key strait as airstrikes widen in Yemen

By The Associated Press | From Page: A11 | Gallery

 
Iran says nuke talks focused despite Yemen crisis

By The Associated Press | From Page: A11

At least 9 dead as militants attack hotel in Somali capital

By The Associated Press | From Page: A12

 
Amanda Knox murder conviction overturned by Italy high court

By The Associated Press | From Page: A12

.

Living

Books as decor: Versatile but meaningful design elements

By The Associated Press | From Page: HSR1Comments are off for this post | Gallery

 
Today in History: March 28, 2015

By The Associated Press | From Page: A2

Community Calendar: March 28, 2015

By Susan Hiland | From Page: A2

 
Horoscopes: March 28, 2015

By Holiday Mathis | From Page: B6

My elderly mother is so stingy I’m finding excuses not to visit her

By Kathy Mitchell and Marcy Sugar | From Page: B6

 
The newest fitness trend: Mixing it up

By The Associated Press | From Page: B10

.

Entertainment

‘Stomp’ stopped by NYC blast

By The Associated Press | From Page: A7

 
Mannequin museum show hits New York

By The Associated Press | From Page: A7

TVGrid

By Daily Republic Syndicated Content | From Page: B7

 
‘Teen Mom’ star charged in picture posting case

By The Associated Press | From Page: A7

People: Zane Malik

By The Associated Press | From Page: A7

 
Larry David Broadway role handed to Jason Alexander

By The Associated Press | From Page: A7

.

Sports

Notre Dame beats Stanford women 81-60, advances to Elite Eight

By The Associated Press | From Page: B1

 
Curry, Thompson lead Warriors in rout over Grizzlies

By The Associated Press | From Page: B1 | Gallery

 
Evans helps desperate Pelicans end skid vs. Kings, 102-88

By The Associated Press | From Page: B1

Ranuado goes 6 for Rangers’ but A’s rally for 7-6 win

By The Associated Press | From Page: B1

 
A-Rod’s cousin pleads guilty in Florida steroids case

By The Associated Press | From Page: B2

Durant to have another surgery, miss rest of season

By The Associated Press | From Page: B2

 
Chicago rooftop owner charged with trying to defraud Cubs

By The Associated Press | From Page: B2

 
Gift returns: Sterling wife wants house, $1 million

By The Associated Press | From Page: B2

Shaq acknowledges regret about decision to leave Magic

By The Associated Press | From Page: B2

 
NASCAR topic: Cheating with tire pressure, or just hot air?

By The Associated Press | From Page: B2

Hot Rod Hundley, former NBA player and Jazz announcer, dies

By The Associated Press | From Page: B2

 
Area resident Jimmy Walker takes lead in Texas Open

By The Associated Press | From Page: B2

Logano wins Martinsville pole; Elliott to start 27th

By The Associated Press | From Page: B2

 
This date in sports history for March 28, 2015

By The Associated Press | From Page: B3

 
.

Business

.

Obituaries

Helen Kalis

By Nancy Green | From Page: A4

 
Robert Roberts

By Nancy Green | From Page: A4

Carol A. Vose

By Nancy Green | From Page: A4

 
Janice Jewel Thompson

By Nancy Green | From Page: A4

.

Comics

Get Fuzzy

By Daily Republic Syndicated Content | From Page: B5

 
Baldo

By Daily Republic Syndicated Content | From Page: B5

Baby Blues

By Daily Republic Syndicated Content | From Page: B5

 
Dilbert

By Daily Republic Syndicated Content | From Page: B5

Pickles

By Daily Republic Syndicated Content | From Page: B5

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: B5

Beetle Bailey

By Daily Republic Syndicated Content | From Page: B5

 
Blondie

By Daily Republic Syndicated Content | From Page: B5

Garfield

By Daily Republic Syndicated Content | From Page: B5

 
B.C.

By Daily Republic Syndicated Content | From Page: B5

Frank and Ernest

By Daily Republic Syndicated Content | From Page: B5

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: B5

Sally Forth

By Daily Republic Syndicated Content | From Page: B5

 
Zits

By Daily Republic Syndicated Content | From Page: B5

Rose is Rose

By Daily Republic Syndicated Content | From Page: B5

 
Word Sleuth

By Daily Republic Syndicated Content | From Page: B6

Bridge

By Daily Republic Syndicated Content | From Page: B6

 
Cryptoquote

By Daily Republic Syndicated Content | From Page: B6

Sudoku

By Daily Republic Syndicated Content | From Page: B6

 
Crossword

By Daily Republic Syndicated Content | From Page: B6

.

Home Seller 3/28/2015

Books as decor: Versatile but meaningful design elements

By The Associated Press | From Page: HSR1Comments are off for this post | Gallery

Real estate transactions for March 28, 2015

By Daily Republic | From Page: HSR2