We’ve all heard the joke about the guy who gets convicted of murdering his parents and then asks a judge for mercy because he’s an orphan. That same kind of chutzpah was displayed in a recent column by Fed Chairman Ben Bernanke is the Washington Post. In an attempt to preserve some of the Fed’s regulator powers (which are not necessary for, and may be harmful to, the central bank’s ostensible mission of price stability) and dodge accountability and oversight, Bernanke warns that, “These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.” These two sentences would be laughable if it wasn’t for the fact that Fed policy mistakes have caused so much misery. At the risk of stating the obvious, the Fed’s easy-money policy was the main reason for the financial crisis. Bernanke’s argument is akin to an arsonist expecting praise for calling the fire department after setting a house on fire. But Bob Higgs, the highly-regarded economic historian, had the best analysis:
And about this “economic and financial stability in the United States” that a Fed audit would threaten: Is Bernanke thinking about the stability we enjoyed between the world wars, when the Fed managed to bring about the onset on what proved to be the greatest depression in world history (an accomplishment for which he has previously accepted responsibility on behalf of the Fed)? Or perhaps he is thinking instead about the stability we enjoyed since 2001, when the Fed pushed the Fed funds rate quickly from 6.5 percent to 1 percent, held it at a negative real rate for several years, then pushed it up quickly to 5.25 percent in 2006-2007, then shoved it down quickly to almost zero in the past year? Zounds. It would certainly be tragic if the American people had to give up such remarkable stability. Or perhaps he is thinking about the fact that before the Fed was created, the dollar had retained its purchasing power more or less constant for more than a century, except for transitory war-related ups and downs, but since the Fed’s creation, the dollar has lost more than 95 percent of its purchasing power. Who calls this degree of debasement stability?