Who is this Bernanke guy?

We felt that yesterday's post regarding the differences of opinion regarding Ben Bernanke warranted further examination into the subject matter.  After all, does anyone really know who this guy is?  And what exactly did he do that would warrant calling such acts "treasonous"?  Well, as historians are wont to do, we've been doing some research.

Back in 2002, in one of his first speeches as a member of the Board of Governors of the Federal Reserve System, (a.k.a., "The Fed"), Bernanke outlined his views on the cause and the economically debilitating impact of deflation on the U.S. economy, and the available and plausible measures the Fed could take to prevent it from happening.  This speech would come to be known as the Bernanke Doctrine.  In short, the measures he proposed to combat deflation are all geared toward the singular purpose of maintaining a constant rate of inflation of 1-3 percent via measured increases of the money supply and graduated reductions of interest rates.  If inflation exceeded 3 percent, the Fed could raise interest rates (to slow the actual injection of money into the economy); if it dropped below 1 percent, it could increase the money supply (a.k.a., "Quantitative Easing").  If interest rates got to zero, the fiscal authorities of the government could then step in to use more unconventional methods, like broad-based tax cuts, or even the acquisition of "existing real or financial assets."

Call Bernanke what you will, he is nonetheless a man of his word.  In 2008, two years after his ascendency to Chairman of the Board, when the recession hit, and inflation dipped as low as .1 percent, the Fed bought up roughly $1 billion in bank debt, Treasury Notes, and Mortgage Backed Securities (with newly printed money).  In 2010, with an inflation rate averaging about 1.5 percent, the Fed bought roughly another $600 billion in Treasury notes (with even more newly printed money).

The reason why so many question the soundness of such a policy of seemingly uninhibited money-printing, is that, once inflation peaks over Bernanke's 3 percent, interest rates must then be increased (to keep the inflation in check), which in turn could stall the debt-based economy (as anyone who witnessed the prime rate increases in the 70's could attest).  Moreover, such a massive stimulus of money could lead to hyperinflation and complete monetary collapse, as has been the ultimate fate of every fiat currency in history. 

Not to say that this is going to happen, but let it now be no surprise that even the very possibility of it is likely to upset people.