In Graphs We Trust

Federal Reserve Chairman Ben Bernanke can’t seem to catch a break.  Wherever he turns someone is there to knock his job performance.  Senators, Presidential candidates, lowly editorial writers…they’ve all lined up and cast their stones.

But why?  Hasn’t Bernanke done everything – and more – that’s been asked of him?  Hasn’t he done precisely what he’s employed to do?

To clarify, if you didn’t know, the Federal Reserve Chairman’s primary job is to give the world exactly what it wants…an abundance of cheap money.  By all measurements, Bernanke’s done a superb job.  Programs like CPFF, MMIFF, TAF, QE, and QE2 are clearly the work of a master money creator.  Alan Greenspan could’ve never conceived of them…and even if he could’ve, he wouldn’t have had the guts to execute them.

But the world is full of critics and ingrates.  Rather than saying thank you to Bernanke, they want to kick him to the curb.  On Tuesday, for instance, Bernanke had to defend himself against a Bloomberg News article that claimed the Fed secretly loaned or guaranteed over $7.7 trillion to bailout banks during the 2008 financial crisis.

Bernanke said in a letter to Congress that the article, “contain[ed] a variety of errors and mistakes” and that the bailout “was a necessary response to ensure that the crucial mistake made during the Great Depression — failing to prevent a collapse of the financial system — was not repeated.”

While Bloomberg may be critical of Bernanke, consumers love the abundance of cheap money he provides…

Making Fools of Savers Everywhere

Consumers can’t get enough of Bernanke’s cheap credit.  According to Federal Reserve data released on Wednesday, consumer borrowing increased in October by $7.65 billion to $2.46 trillion.  Growth in auto and student loans led the way.

Consumers, of course, are just doing what the Fed has trained them to do.  They are spending money on credit.  It’s the most rational decision given the distortions the Federal Reserve has made of capital markets.  Only a fool bothers to save money when certificate of deposits are paying 0.45 percent and inflation is increasing at 3.5 percent.

We don’t like or agree with this scenario one bit.  But who are we to stand in the way of the facts.  Unfortunately, the facts of the matter tell us that, thanks to heavy handed intervention by the nation’s central banker, people who save their money in dollars get punished.

Here at the Economic Prism one of our gripes with Bernanke is not so much with the job he’s done; but that his job even exists at all.  One hundred years ago there was no Federal Reserve, if you can believe it.  Yet somehow people got along just fine without its perpetual money creation.

That was back when a dollar was worth what a dollar had been worth for the prior 100 years.  Back then you could actually build wealth by saving money.  In the 98 years since the Fed has been in existence, a dollar has been debauched to about 3 cents…making fools of savers everywhere.

In Graphs We Trust

Our other main gripe with Bernanke is that he trusts in graphs.  What we mean is Bernanke believes that if he gets a graph to show what he wants, he’s somehow improved the world.

For example, Bernanke wants a graph of GDP to show annual growth of 3 percent.  But, unfortunately, he has a problem…GDP is less than 3 percent.  So he scratches his head to come up with a way to increase GDP.  Coincidentally, or perhaps not, Bernanke always reaches the same solution…extending more and more cheap credit to consumers.

As you can see, the problem with graphs is that, aside from being incomprehensible, they don’t show what’s really going on.  If GDP increases due to a binge of debt based consumer spending it no longer is a measurement of the rate of economic growth.  Rather, it’s a measurement of the rate people are going broke.

Contrary to Bernanke’s erudite acumen, the economy is not a composition of data points; it’s a living and breathing animal far too complex to be managed by charts and graphs.  In other words, it must inhale and it must exhale.

Bernanke wants his graphs to show the economy inhaling indefinitely.  No doubt, he’ll pump it up with cheap money until its lungs explode.  That’s when the graph no longer shows what he wants.  That’s when the y-axis goes into free fall.


MN Gordon
for Economic Prism

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