Tuesday, April 21, 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

 
Kids Day of Fishing began with $20 donation

By Amy Maginnis-Honey | From Page: A2

 
Chabad will begin Torah for Solano Jewish community

By Amy Maginnis-Honey | From Page: A5

Library foundation executive moves to Child Haven

By Susan Winlow | From Page: A5

 
Theater schedules free screening of Sundance film

By Amy Maginnis-Honey | From Page: A8

Vacaville plans recreation expo

By Amy Maginnis-Honey | From Page: A5

 
Frazier to discuss transportation at EDC breakfast

By Kevin W. Green | From Page: A5

 
Fairgrounds site of horse-betting seminar, brunch

By Susan Hiland | From Page: A5

Il Fiorello schedules vegetarian cuisine class

By Susan Hiland | From Page: A5

 
Fairfield police log: April 19, 2015

By Glen Faison | From Page: A12

Suisun City police log: April 19, 2015

By Glen Faison | From Page: A12

 
.

US / World

Lawmakers seek FDA review of ingredients used in cosmetics

By The Associated Press | From Page: B2

 
 
 
Sheriff’s domestic violence-related conviction erased

By The Associated Press | From Page: B2

Utah woman gets up to life in prison in deaths of 6 newborns

By The Associated Press | From Page: B2

 
 
Lawyer: Washington Post reporter in Iran faces 4 charges

By The Associated Press | From Page: B2, 2 Comments | Gallery

 
Bombs shatter houses in Yemen capital, hit near Iran Embassy

By The Associated Press | From Page: B2

 
Questions, answers about federal anti-radicalization effort

By The Associated Press | From Page: B2

 
Where US sees terror prevention, some Muslims see profiling

By The Associated Press | From Page: B2, 4 Comments | Gallery

 
Chemistry Ph.D. student illustrates her thesis in comic book

By The Associated Press | From Page: B3 | Gallery

Public memorial held for the Rev. Robert Schuller

By The Associated Press | From Page: B2

 
SC paper wins Pulitzer for reporting on domestic abuse

By The Associated Press | From Page: B2

 
.

Opinion

 
Why does Fed insist on targeting inflation?

By Ramesh Ponnuru | From Page: A11, 2 Comments

Income disparity study results ironic

By Dan Walters | From Page: A11, 22 Comments

 
.

Living

Community Calendar: April 21, 2015

By Susan Hiland | From Page: A2

 
.

Entertainment

 
Bobby Brown’s lawyer: Bobbi Kristina Brown has opened eyes

By The Associated Press | From Page: B3

US writer who fled Austria to escape Holocaust dead at 90

By The Associated Press | From Page: B3

 
Vice News, NPR, CNN, WNYC win double Peabody Awards

By The Associated Press | From Page: B3

HBO planning to deal Web pot sitcom ‘High Maintenance’

By The Associated Press | From Page: B3

 
Kolbert’s ‘Sixth Extinction’ wins Pulitzer for nonfiction

By The Associated Press | From Page: B3

Wolfe’s ‘Anthracite Fields’ wins Pulitzer for music

By The Associated Press | From Page: B3

 
Anthony Doerr wins Pulitzer Prize for fiction

By The Associated Press | From Page: B3

Elizabeth A. Fenn wins Pulitzer Prize for history

By The Associated Press | From Page: B3

 
Gregory Pardlo’s ‘Digest’ wins Pulitzer Prize for poetry

By The Associated Press | From Page: B3

David I. Kertzer wins Pulitzer for biography-autobiography

By The Associated Press | From Page: B3

 
Stephen Adly Guirgis wins Pulitzer for drama

By The Associated Press | From Page: B3

.

Sports

Mustangs rally in seventh inning to top Falcons

By Daily Republic staff | From Page:

 
AP source: Peterson stays home from Vikings workouts

By The Associated Press | From Page: B1

Report: 2 teams needed to make California stadium profitable

By The Associated Press | From Page: B1

 
Data deluge: MLB rolls out Statcast analytics on Tuesday

By The Associated Press | From Page: B1

Former Chicago Bears linebacker Doug Buffone dead at 70

By The Associated Press | From Page: B1

 
New format means injured drivers no longer must race

By The Associated Press | From Page: B1

Saunders: ‘I’m the coach until I say I’m not’

By The Associated Press | From Page: B1

 
Faldo to make final appearance at British Open this year

By The Associated Press | From Page: B1

Braves’ McKirahan suspended 80 games for positive drug test

By The Associated Press | From Page: B1

 
Raptors Lou Williams wins NBA Sixth Man Award

By The Associated Press | From Page: B1

Ugly Olympic conflict breaks into open at Sochi conference

By The Associated Press | From Page: B1

 
Pacquiao gets in 2 words before conference call cancelled

By The Associated Press | From Page: B1

Eagles sign quarterback Tim Tebow to 1-year contract

By The Associated Press | From Page: B1

 
McLellan out after 7 years as coach of San Jose Sharks

By The Associated Press | From Page: B1

Pelicans coach says Warriors arena noise might be too loud

By The Associated Press | From Page: B1

 
Police: LA Kings’ Jarret Stoll had cocaine, Ecstasy in Vegas

By The Associated Press | From Page: B1

Desisa wins 119th Boston Marathon; Rotich takes women’s race

By The Associated Press | From Page: B1

 
Jockey Chris Antley leads Racing Hall of Fame class

By The Associated Press | From Page: B1 | Gallery

.

Business

Judge returns ultra-rich club founder Tim Blixseth to jail

By The Associated Press | From Page: B4

 
Running out of time: Limited-time deals can be limiting

By The Associated Press | From Page: B4

$134M proposed for 10 BP-funded oil spill recovery projects

By The Associated Press | From Page: B4

 
Hormel says bird flu outbreak will hurt turkey sales

By The Associated Press | From Page: B4

Bird flu confirmed at Iowa farm with 5.3 million chickens

By The Associated Press | From Page: B4

 
US stocks gain, rebounding from Friday’s slump; Hasbro jumps

By The Associated Press | From Page: B4

 
Survey: US businesses expect sales rebound, more hiring

By The Associated Press | From Page: B4

Bristol-Myers: 2 cancer drugs beat 1 against melanoma

By The Associated Press | From Page: B4

 
Halliburton says has cut 9,000 jobs in wake of oil’s drop

By T. Burt McNaughton | From Page: B4

Labor group seeks rehiring of workers at 5 Wal-Mart sites

By The Associated Press | From Page: B4

 
Frederick’s of Hollywood files for Chapter 11 bankruptcy

By The Associated Press | From Page: B4

Willie Nelson becomes latest celebrity in marijuana business

By The Associated Press | From Page: B4 | Gallery

 
Kraft Mac & Cheese shedding the dyes

By The Associated Press | From Page: B4

ESPN says Verizon’s new FiOS TV packages violate agreements

By The Associated Press | From Page: B4

 
Lawsuit: Southwest failed to respond to medical emergency

By The Associated Press | From Page: B4

.

Obituaries

.

Comics

Bridge April 21

By Daily Republic Syndicated Content | From Page: B8

 
Get Fuzzy April 21

By Daily Republic Syndicated Content | From Page: B7

Peanuts April 21

By Daily Republic Syndicated Content | From Page: B7

 
Rose is Rose April 21

By Daily Republic Syndicated Content | From Page: B7

Frank and Ernest April 21

By Daily Republic Syndicated Content | From Page: B7

 
Baby Blues April 21

By Daily Republic Syndicated Content | From Page: B7

For Better or Worse April 21

By Daily Republic Syndicated Content | From Page: B7

 
Word Sleuth April 21

By Daily Republic Syndicated Content | From Page: B8

Dilbert April 21

By Daily Republic Syndicated Content | From Page: B7, 1 Comment

 
Sally Forth April 21

By Daily Republic Syndicated Content | From Page: B7

Cryptoquote April 21

By Daily Republic Syndicated Content | From Page: B8

 
Garfield April 21

By Daily Republic Syndicated Content | From Page: B7

Crossword April 21

By Daily Republic Syndicated Content | From Page: B8

 
B.C. April 21

By Daily Republic Syndicated Content | From Page: B7

Wizard of Id April 21

By Daily Republic Syndicated Content | From Page: B7

 
Blondie April 21

By Daily Republic Syndicated Content | From Page: B7

Beetle Bailey April 21

By Daily Republic Syndicated Content | From Page: B7

 
Baldo April 21

By Daily Republic Syndicated Content | From Page: B7

Zits April 21

By Daily Republic Syndicated Content | From Page: B7

 
Pickles April 21

By Daily Republic Syndicated Content | From Page: B7

Sudoku April 21

By Daily Republic Syndicated Content | From Page: B8