Global Crisis Blog

Bernanke Denies Creating the Last Bubble –

And Claims Credit for Creating the Next One

By Shlomo Maital.  

   Fed Open Market Committee Chair Ben Bernanke faces a storm of criticism worldwide for his QE2 policy – the second round of quantitative easing, which sees the Fed purchase 10-year government bonds in massive amounts, totaling (by some accounts) some $1.5 trillion before the program ends.   The policy is not about buying bonds, it is about paying for them and thus creating huge new mountains of dollars.  The policy of spilling such vast amounts of dollars into the world is, to say the least, highly irresponsible, when the American dollar is still the world’s key currency and its stability is crucial to the wellbeing of every country that participates in world trading and global capital markets. 

   Prof. Bernanke, formerly an economics professor at Princeton University, now has a new justification for his policy. He says it will help boost the price of common stocks.   This is a remarkable statement.  Bernanke, who became Fed chair in 2006 when Alan Greenspan retired after 19 years of service, has joined Greenspan in denying that the Fed helped create the housing bubble, despite drastic interest rate cuts in 2001-3 and rapid credit expansion.  Yet he is now apparently trying to create a new one, possibly this time in Asia, to which much of the money he is printing is fleeing. 

   Here are the facts.  The Dow-Jones 30 Stock Industrial Average DJIA peaked at 14164.53 points in the summer of 2008, and then fell rapidly to 6,547.05 at bottom within a year, a drop of 54 per cent.  Since then the DJIA has recovered, to about  11,200 points, a rise of 71 per cent.  So stocks have already made up a large part of their losses.  Do they really need short-term short-sighted help, by massive printing of money?  Is this really what the American economy and American businesses truly need?  

   The QE2 policy is hugely irresponsible and should be stopped before it gets rolling.