Ben Bernanke, chairman of the Federal Reserve, spoke on Monday at the University of Michigan. In many ways his talk was repetitious, but whenever there are questions from Twitter involved, there are always some surprises. Bernanke began, predictably, by discussing the fiscal situation of the U.S. Although, he agreed that the current trends in spending are unsustainable long term, he does not want “to unduly hurt the economy.”
When discussing the debt ceiling he first said that “the debt ceiling gives Congress the ability to pay its bills,” but then likened it to “not paying your credit card bills.” This analogy is fallacious because it assumes that not raising the debt ceiling is equivalent to default, which it most certainly is not. Just like in personal finance, there are many bills not — just the minimum interest payment on your “credit card bills.” Not raising the debt ceiling is much more like deciding to not use your credit card anymore. When someone stops using their credit card, they will prioritize their spending to pay the important bills and not buy as many Christmas presents this year. The government can prioritize its spending as well and pay the minimum interest payments and therefore not see the negative repercussions from default Bernanke is harping on about. He did comment that he thought the trillion dollar coin was not a good way to solve the debt ceiling issue.
He was later asked about lowering interest rates to virtually zero and what effect large scale asset purchasing (quantitative easing) had on long term interest rates. He said that there was “some effect” on the economy and interest rates were an “effective tool,” but was reluctant to explain those effects and tools more than to say, “mortgage rate was incredibly low.” This he said was a sign of a housing market recovery. Is anyone worried that lowing the mortgage rate this low in the past led to the housing bubble in the first place? Well not Bernanke. When asked what was surprising about the recession he answered, “the recession.” When asked about how what tools they had to help reduce bubbles in the future he said that bubbles are “very difficult to anticipate.”
But not for Austrian economists like Robert Murphy or people educated in the Austrian Business Cycle, which accurately predicted the housing bubble and the dot com bubble. He instead advocated that we needed to improve “supervision.” But when asked about the Audit the Fed Bill he was less keen on “supervision.”
He said that the Fed has already been “fully” audited by both the Government Accountability Office and by an independent auditor. This, however, is not true, as tweets were pointing out on twitter feed the Federal Reserve does not put any of their international transaction on their balance sheets. The also using money laundering techniques to make bad assets look good and selling them back to the banks they bought them off and other more financially secure banks, read more here.
When asked about how his great knowledge of the Great Depression helped inform his decisions about the financial crisis. He said that the Fed did not try to expand the monetary base enough nor did they try to stabilize the banks. Well those are certainly policies he performed rather avidly this time around. He did not mention that there was more financial instability after the inception of the Federal Reserve than before.
Why the camera kept showing the crowd, I do not know, because every shot had at least one person sleeping and a lot of people incredibly bored, especially when he said “supervision” about six times in a minute. He did get some laughs when he was asked a Twitter question and responded, “Was that 140 characters?”
All in all, I wish there had been better questions since the only mildly interesting questions were about the trillion dollar coin and the Audit the Fed bill.