When Texas governor, Rick Perry, implied (well it might have been a little stronger than an implication!) that Ben Bernanke might have bordered on being treasonous in some of his past or possibly proposed actions as chairman of the Federal Reserve System Board of Governors, he stirred up a hornet's nest.
Unfortunately, almost all of the public discussion about this event considered whether or not this was a civil or “politically correct” thing to say. None of it that I heard focused on the issue that drove the comment, specifically adding some 600 billion dollars to the money supply over just a few months beginning last November.
The real question is whether the fed has been “printing money” for political reasons—to ease pressure on the politicians in Washington—rather than expanding the money supply only to match economic expansion.
The money supply properly should reflect economic productivity. When productivity increases, more people are working, etc., it is proper to increase the money supply. Since there has been a decline in productivity rather than an expansion recently, the reason for “printing more money” is certainly a fair issue to raise.
One's choice of words can certainly be open to question. In this case they may well have obscured the issue although they did get everyone's attention. But it is certainly legitimate to challenge a person's actions when their decisions appear out of step with their public responsibility.
The fact is that recent decisions to pump several hundred billion dollars into the economy is already having a detrimental effect. Only those who haven't been to the grocery store lately will question it. Increasing the money supply in the absence of increased productivity inevitably leads to inflation.
There appeared to be some good news on August 26th when Bernanke declined to repeat himself and stated the truth in a public way. He declared clearly that he cannot fix the economy by printing more money. He commented that it is up to congress to take the hard steps that are required.
But then on Wednesday (September 21st) he announced a more complex step of buying some and selling other securities that somewhat camouflaged the fact that there was another 200 billion dollars of cash being added to the money supply. Most people focused on the fact that he was selling short term and replacing with long term securities which carries some ominous implications but I think the increased money supply is also important.
Personally I will not speculate on Bernanke's thinking in taking his previous steps even though I might question whether they have always been best. I applaud what he did this last month in declining to “print more money” or raise interest rates (even if it was forced by public scrutiny). But I worry about his earlier steps and those taken this week.
Our focus is on personal finances, not political policy or macro-economics, but the reality is we all have to live with the consequences of the actions taken by those in these positions of responsibility.
Let's only hope that all our leaders will show the courage they need to start acting responsibly. Perhaps if they think we have all started to watch with a critical eye to reality and integrity they will.
