Outgoing Fed Chair Ben Bernanke took a moment last Friday to bid farewell.  With his final speech as Fed Chair, he endeavored to clarify exactly what he’s been up to over the last eight years.  Many topics were touched upon; strangely, trashing the currency wasn’t one of them.

More insightful to Bernanke’s time as Fed Chair, however, is not his outgoing speech.  Rather, it’s a speech he gave several years prior, as a Fed Governor, where he laid down his rules for combating a deflationary depression.  Hence, we’ll pause a moment to review the Bernanke doctrine, as excerpted from his November 21, 2002 speech: “Deflation: Making Sure ‘It’ Doesn’t Happen Here.”

“The U.S. Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost,” explained Bernanke.  “By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. Government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the price in dollars of those goods and services.” Continue reading →