This is an easy question for me to answer. To be honest, I have no idea.
If I knew such things, I could time the market and I’d be rich beyond my wildest dreams and relaxing on the beach in the Cayman Islands instead of sitting in my kitchen in chilly Virginia.
Heck, I don’t even know whether the Fed’s policy is wrong or just worrisome. It’s possible, after all, that the central bank has provided appropriate liquidity and it will soak it up at the right time.
I don’t think that’s the case. I fear Bernanke is in over his head and that the Fed is engaging in the monetary version of Keynesian economics.
And if that’s true, something bad will happen at some point. If there’s too much liquidity out there, it presumably will show up at some point as either rising prices or an asset bubble.
Then again, we know banks are keeping more than $1 trillion of excess reserves parked at the Fed and maybe it will stay that way forever. In which case the private sector is inadvertently protecting us from bad monetary policy. Thomas Sowell has suggested that something like this is happening.
I can say for sure is that we wouldn’t have to worry if we were in a libertarian fantasy world and the private sector was responsible for money.
You may think that sounds crazy, but that’s the way it used to be, as explained in this short video.
John Stossel has made the same point about competing market-based currencies.
And if you want to see how well money has maintained its value since the Federal Reserve took over, this link has an excellent video.
P.S. I often get asked about the gold standard. It’s good in theory, but the real issue is whether governments can be trusted to operate it prudently and honestly.
P.P.S. Since Christmas is just two days away, we can all wonder whether we will get this present from Ben Bernanke. And if you still have some last-minute shopping to do, here’s a Bernanke t-shirt for your liberal friends.
P.P.P.S. For some laughs, check out Ben Bernanke’s Facebook page.