5df4050146f86f5010d42e00_pa2502c.jpg Paul Lachine

Ben Bernanke’s Dream World

Ben Bernanke's recent claim that the US economy's “growth fundamentals" apparently have not permanently altered by the shocks of the past four years” is simply not credible. Worse still, it sanctions a hands-off approach to economic depression that threatens to undermine US and global growth for years to come.

BERKELEY – US Federal Reserve Board Chairman Ben Bernanke is not regarded as an oracle in the way that his predecessor, Alan Greenspan, was before the financial crisis. But financial markets were glued to the speech he gave in Jackson Hole, Wyoming on August 26.  What they heard was a bit of a muddle.

First of all, Bernanke did not propose any further easing of monetary policy to support the stalled recovery – or, rather, the non-recovery. Second, he assured his listeners that “we expect a moderate recovery to continue and indeed to strengthen.” This is because “[h]ouseholds also have made some progress in repairing their balance sheets – saving more, borrowing less, and reducing their burdens of interest payments and debt.” Moreover, falling commodity prices will also “help increase household purchasing power.”

Finally, Bernanke claimed that “the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years.”