Gary North

Nov. 9, 2010

This video indicates that Ben Bernanke, Ph.D., Keynesian, and Federal Reserve Board member, did not have a clue about what was about to happen to the economy. I did. Other Austrians did. We predicted the recession. Bernanke denied it.

Before you take seriously his promise that the $600 billion in monetary base growth will reduce unemployment, restore economic growth, and not cause price inflation, review this video. Watch the interviewers toss him softballs, which he swung at. Fly balls. Out.

It was clear to Austrian School economists that Greenspan had left Bernanke with the famous mud sandwich. He had forced down short-term interest rates, beginning in 2000, to avoid the 2001 recession. I predicted that one, too: the inverted yield curve, where 90-day T-bill rate was above the 30-year T-bond rate. When Greenspan's inflation produced the housing bubble, a number of Austrians sent a warning, beginning in 2005: it would pop. I was one of them.

It popped. But Bernanke never saw it coming.

Keynesians never see recessions coming. They believe that their peers are in charge. They believe that Keynesianism has made recessions obsolete. The government was running large deficits in 2005-7. Here is the Keynesian mantra: "Federal deficits undermine recessions." There was no recession in sight, he said.

Bernanke is a bluffer. Other central bankers now know this. He has shot his wad with them as of November 3, 2010.

He thinks that he can restore the boom by forcing down mid-maturity T-bond interest rates. This will make the boom-bust cycle worse.

He has a 10-to-1 majority on the Federal Open Market Committee. All but Hoenig dutifully does what he says. They are rubber stamps. The coming crises will undermine people's trust in the entire process. The FED has already lost more credibility under Bernanke than it has under any other Chairman. This loss of credibility has only just begun.

In January, Ron Paul will take over as Chairman of House Subcommittee for Domestic Monetary Policy and Technology. It is part of the House Financial Services Committee. In the past, it has dealt with questions concerning commemorative coins and whether or not to eliminate the penny. He says that he will broaden its authority. That will include the Federal Reserve.

It will be Bernanke's worst nightmare. For 30 years, the Banking Committee has tried to marginalize Paul. But he ran for President in 2008, raised tens of millions of dollars, and has been proven right: the Federal Reserve produced a disaster, just as he said it would. He now has a national audience. YouTube has given it to him.

Over the next few years, we will see who is bluffing and who isn't.

Back when I was Paul's research assistant in 1976, Arthur Burns was Chairman. He seemed so intellectual, smoking his pipe and saying nothing. Then came Paul Volcker, who is six feet eight and who smoked cigars. He seemed so wise. No bluffer, he! Greenspan seemed to be a magician, saying meaningless magic words in testimony -- a master of verbiage. But things seemed to work out. They are not working out for Bernanke. He has only footnotes to shield him from scrutiny. It isn't working. That's because the economy isn't working.

It is going to work even worse over the next two years.