The Bloomberg article reporting on what Fed Chairman Ben Bernanke said at the annual monetary conference in Jackson Hole, Wy headlined: Bernanke Does Not Rule Out More Bond Purchases. Other media stories will no doubt echo this same language, taken from Bernanke’s speech. But let’s be clear: the Fed does not simply make bond purchases. It creates money out of thin air and uses that new money to buy bonds. So what is really happening is money “printing,” not buying bonds. The media has a responsibility to tell the truth when public officials do not. Instead the media chooses to be complicit in the deception.
In addition, Bernanke reiterated the old Keynesian point of view that long periods of unemployment cause ” enormous suffering and waste of human talent.” All too true, but it does not explain how a problem caused by too much money printing, which enters the economy as debt, will be cured by more money printing and debt. More alcohol does not cure a hangover and does not help the suffering and waste of human talent associated with alcoholism. It is the same with an addiction to spending borrowed money.
The chairman also returned to the old Keynesian idea that long term high unemployment can risk “structural damage on our economy that could last for many years.” This confuses symptom with illness. Unemployment results from structural damage rather than causing it, and the structural damage in this case was inflicted by the Fed, led by chairmen Greenspan and Bernanke, and other central banks.
Finally Bernanke took the opportunity again to congratulate himself on boosting stock market prices. An interpretation is needed. This means the Fed will let stock prices go as high as they want to go, fueled by easy money, but will step in and prevent any serious correction with even easier money. This is what economists call “moral hazard” and it contributes, along with the easy money, to the bubble/bust cycles we have been experiencing.