Next, Tim thinks stress maybe taking its toll on Bernanke:
What Was He Thinking?, by Tim Duy: There are two stories about Federal Reserve Chairman Ben Bernanke that are rather disturbing. The first is reported via Yves Smith. Apparently, Bernanke told a private economist David Hale:
"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices."
To be sure, if Bernanke actually believed he had policy independence in an economy driven by the financing of foreign central banks, we should all be a bit concerned. And why would he tell anybody this? How do I get such a private meeting?
I am hoping the quote was taken out of context.
The second item is the belated Congressional reaction to the innovative actions by Bernanke and Treasury Secretary Hank Paulson. Suddenly Congress realizes that they are having policy dictated to them, and they become unhappy. This, in and of itself, is not surprising. This is:
House Financial Services Committee Chairman Barney Frank (D., Mass.) suggested Wednesday he was concerned that the Fed and Treasury were intervening in markets without restraint.
While noting that he considers Mr. Bernanke a “responsible and thoughtful person,” Mr. Frank related a conversation held Tuesday in which Mr. Bernanke allegedly said “I have $800 billion” when Mr. Frank asked him if he had $85 billion available to help AIG. (The figure refers to the size of the Fed’s balance sheet, its holdings of U.S. Treasury securities plus its growing holdings of loans the Fed financial firms and securities it has taken from Wall Street in exchange for more-desirable Treasury securities.)
“No one in a democracy, unelected, should have $800 billion to spend as he sees fit,” said Mr. Frank. “You look out at the landscape and what do you see but, oh, here over the horizon comes the loan arranger and his faithful companion Paulson. And they give some money here. They don’t give some money there. They’re good guys, but that’s not the way to run a democracy.”
To be sure, Bernanke can’t be expected to make everyone happy all the time. If he did, the Fed wouldn’t be independent anyway. And one can reasonably argue that the Fed and Treasury had to act because Congress couldn’t or wouldn’t. But the Fed Chairman should resist the urge to flaunt that independence; humility is often a good thing.
I blame it on the stress.