Had I been a lecturer at a university in the past and if I had, at the time, the opportunity to grade student Ben Bernanke, we would have today a different Fed chairman. I would have had to let him fail his final exams. I would have told him that he might be better off to learn the trade of a printer than that of an economist. In a printing shop he could have printed everything, from porno to books on Christian fundamentalism, but at least the world would have been spared from having him at the US Federal Reserve. At the Fed he will inevitably follow the footsteps of his predecessor, Mr. Greenspan, and continue to print money. Under him the US dollar will continue to lose its purchasing power against goods and assets at an increasing rate, as it has since the formation of the US Federal Reserve in 1913.
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In my opinion, it will, in future, never be possible for Mr. Bernanke to do “à la Volcker 1979-1980 tightening” (see figure 1) and this, even if conditions were calling for such action! Why? Because, when Paul Volcker implemented really tight monetary policies, debt as a percent of GDP was only 120% and asset prices such as homes and stocks were depressed. But, today, with total credit market debt at over 320% of GDP and with asset prices being badly inflated, tight monetary policies “à la Volcker” would have a lethal impact on US consumers, which are the only driver of the economy thanks to rising home prices. In fact, given the debt level in the US, I believe, that Mr. Bernanke has really no other option but to print more and more money if he wants to avoid a deflationary recession/depression.

Marc Faber: Poor Mr. Bernanke

Posted by: b | May 18 2006 5:28 utc | 1