Krugman: Paralysis at the Fed

[steve2470]

http://www.nytimes.com/2010/08/13/opinion/13krugman.html?_r=1&ref=opinion

Ten years ago, one of America’s leading economists delivered a stinging critique of the Bank of Japan, Japan’s equivalent of the Federal Reserve, titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?” With only a few changes in wording, the critique applies to the Fed today.

At the time, the Bank of Japan faced a situation broadly similar to that facing the Fed now. The economy was deeply depressed and showed few signs of improvement, and one might have expected the bank to take forceful action. But short-term interest rates — the usual tool of monetary policy — were near zero and could go no lower. And the Bank of Japan used that fact as an excuse to do no more.

That was malfeasance, declared the eminent U.S. economist: “Far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution and its defensive response to criticism.” He rebuked officials hiding “behind minor institutional or technical difficulties in order to avoid taking action.”

Who was that tough-talking economist? Ben Bernanke, now the chairman of the Federal Reserve. So why is the Bernanke Fed being just as passive now as the Bank of Japan was a decade ago?

more at link above

[Kurt_and_Hunter]

1. Unconventional asset buys & public inflation target of 4%

Two things Bernanke *could* do unilaterally this afternoon.

None of the "getting through Congress" stuff... Bernanke has that power.

All things considered, I think Bernanke has behaved the best, the smartest, the most responsibly of any public official throughout this crisis. That is easier to do when you have as much unfettered power as he has, but he could have finished the country off by doing "wise" conservative things that the conventional wisdom crowd would have applauded at the time.

Even the one guy in the whole tragi-farce who has shown vision and guts lacks vision and guts.

It's sad.

[notesdev]

6. Say what?

"I think Bernanke has behaved the best, the smartest, the most responsibly of any public official throughout this crisis."

I almost agree, actually, but for all the wrong reasons.

Bernanke has done nothing but lie his ass off before and since the financial crisis hit the front pages. He is the most dangerous of bureaucrats - an academic out to prove a thesis. He's lied in public and under sworn testimony, broken clear black-letter law as to the limits of the Federal Reserve multiple times, as is as much an ally of the banking cartel as there is in government (tied perhaps with Geithner and Summers).

Bonus points if you can name the topic of his thesis.

[xchrom]

8. Oy - it just seems like it's part of that whole

'American incompetence' thing that's become so
Prevalent.

We can do better.

[madrchsod]

2. interest rates in japan fell below 0%....and so will ours

[Po_d Mainiac]

3. Here is the actual speech .... PDF file

http://www.princeton.edu/~pkrugman/bernanke_paralysis.pdf

[Kurt_and_Hunter]

4. And the Krugman (1999) paper Bernanke references .... PDF file

http://web.mit.edu/krugman/www/bpea_jp.pdf

[bemildred]

5. Hey, when you are out of ammo, you can't shoot your big gun anymore. nt

[Warpy]

7. Bernanke is a wonk. He's a breath of fresh air

after years of that fish faced enemy of the people, that Randorrhoid Greenspan, a man who went into near apoplexy every time a working man got a raise.

He's just out of tricks and realizing you can't move a three foot string on a table top by nudging one end of it with your pinkie.