Insanity or Just Optimism?


Insanity:  def. doing the same thing over and over again and expecting different results –Albert Einstein

Ben Bernanke, Chairman of the Federal Reserve since 2006, spoke to the Senate Banking Committee today defending the current economic stimulus campaign with general economic optimism. There is definitely reason for concern with the current situation as “The Fed, which has amassed almost $3 trillion in Treasury and mortgage-backed securities to promote more borrowing and lending, is expanding those holdings by $85 billion a month until it sees clear improvement in the labor market. It plans to hold short-term interest rates near zero even longer, at least until the unemployment rate falls below 6.5 percent.”

Have no fear, Bernanke smoothed over worried investors that feared the Fed’s policies are encouraging excessive risk-taking and those that thought it would be difficult to unwind the extensive purchases, though some Senators still questioned the potential costs of the low-interest program. Bernanke’s aggressive defense of interest policies reminded me of Enron’s desperate attempts to convince investors and the public that they were undervalued.

One quote that actually made me more concerned thinking back to the weekend that changed wall street:

“To this point we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation.” -Ben Bernanke

While current unemployment levels are a major concern, even with economic growth, Bernanke holds one of the best inflation rates (if really considering 2% inflation ideal) as chairman of the Fed:

Chairman Years Average inflation rate (%)
Daniel R. Crissinger 1923-27 0.9
Roy A. Young 1927-30 -0.9
Eugene Meyer 1930-33 -9
Eugene Black 1933-34 1.3
Marriner Eccles 1934-48 3.6
Thomas McCabe 1948-51 2.6
William McChesney Martin Jr. 1951-70 2.2
Arthur F. Burns 1970-78 6.2
G. William Miller 1978-79 8.8
Paul Volcker 1979-87 5.3
Alan Greenspan 1987-2006 2.6
Ben S. Bernanke 2006-Present 2

So did the collapse of Wall Street really teach us anything? Is the Fed continuing policies encouraging Moral Hazard? Are we really encouraging a shift from short term focus to long term benefits or keeping policies the same in hope that firms will make the right decisions for themselves… Sounds like insanity to me Mr. Bernanke.

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3 thoughts on “Insanity or Just Optimism?

  1. I feel that Bernanke is not exactly insane, but instead just a true believer. You might however call it insanity, but he is just desperately devoted to his god and the way things are done according to his “bible”. Accepting the fact that his methods do not work is going to be similar to giving up on your religion, in this case. Or perhaps he just doesn’t know other ways to solve the issue 🙂

  2. I think that Bernanke is a little bit crazy. There is going to be a point where all of the quantitative easing that he has been doing will backfire. The only reason there hasn’t been a huge inflation spike because of the devaluation of the dollar is because other countries(Japan) are exercising the same fiscal policies. The QE may be causing the stock market to reach all time highs, but the value created is not real. If you look at the gains of the stock market to that of gold against the dollar, the trends are almost identical. It’s only a matter of time before inflation sharply increases and food prices reach unbearable levels for lower income individuals.

  3. Honestly, I fell like Bernanke is in a really tough spot with this, the more he must think about it at a personal level. Objectively, he’s NUTS for thinking that his methods are going to work… this time, or maybe this time, or the next…

    But the thing is, I imagine that from his point of view, he sees the actual reality of the situation as a corrupted version of what he thinks should happen. His methodology is based on “sound” economic reasoning, and for him, the real problem is that people are aren’t acting rationally. So therein lies his problem: he expects that people will follow HIS logic, and they won’t.

    In that sense, he’s nuts. His plan requires people to set priorities such that their personal (at a personal and org level) goals come second to “the system” which is a stupidly idealistic expectation.

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