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How Revisionism Saves Bernanke

Be Jeffrey Snider of Alhambra Investment Partners

How Revisionism Saves Bernanke

A shorter version of my prior post would have exclusively directed to Bernanke’s oped in yesterday’s Wall Street Journal; specifically one passage. If you haven’t heard, the former Fed chair has written a memoir that glorifies his courage and intellectual fortitude in overcoming a historical barrage of criticism (his perspective). Clearly, he feels that was unearned though by count and construction of his latter work a sinking worry on that part has surely set in. As Greenspan, the goal can only be rehabilitation of his reputation by selective highlighting (which, obviously, you wouldn’t need to do if you were confident in your position).

Most of the oped has been sufficiently challenged but I haven’t seen anyone take him at his own word right from the start.

What the Fed can do is two things: First, by mitigating recessions, monetary policy can try to ensure that the economy makes full use of its resources, especially the workforce. High unemployment is a tragedy for the jobless, but it is also costly for taxpayers, investors and anyone interested in the health of the economy.

He goes on to score his own efforts in the years after the recession while conspicuously omitting this first criterion. The performance of monetary policy is at least arguable during the “recovery” (though not especially convincing), but on this count it is inarguable, undeniable and incontrovertible – he failed spectacularly. In other words, if monetary policy can “mitigate recessions” why didn’t it? Bernanke has been given hero status based solely upon the other end, namely what happened in the worst days without ever explaining why there were worst days! Curiously (not really), that point is never answered in his work (not just todays).

If monetary policy was so effective then why did he clearly fail to use it in 2008, because if it was as effective as he claims there never would have been a Great Recession. And if it wasn’t properly deployed because he could not understand and appreciate the full scope of what was coming, then it is useless to be so dependent on fallibility in the first place. His whole claim to such honored glory is based on a lie; that all that counts was what he did after. It is as revisionist as it is constructive in how his legacy should properly be viewed. More than that, it is entirely purposeful about what we should still expect of central banking, central bankers and their ultimate impotence (on full display in 2008, 2011-12 and yet again in 2015).

The US economy, for all the supposed magic of monetary policy, got that “tragedy” of high unemployment anyway – a manifestation that clearly continues in any truly honest assessment of the recovery. Bernanke claimed to be the fastest, most useful gun in the West, so much so that the town neglected basic and personal security, but then he only used it after the black hat (market, in the orthodox view) bad guy pillages the local bank, burns down several saloons and steals all the horses; and still he expects to be treated as a hero, symbolically emptying his revolver only as that bad guy passed beyond range instead riding off into the sunset.

Most Americans can see the spoiling incongruity of his grandeur. He claims, somehow, to defend monetary policy as it supposedly removes and prevents all the really bad downside at the same time the world is still rebuilding from the last one while seriously contemplating the next one. As 2008 proved, timing was never his strong point; as his oped proves, duplicity is.