FOX Business host Larry Kudlow discusses former Federal Reserve Chairman Ben Bernanke’s past in economics and comments on winning the Nobel Prize in Economics with ‘Kudlow’.
As you know, former Fed Chairman Ben Bernanke has just been awarded the Nobel Prize in Economics. A friend of mine suggested it was the worst Nobel Prize in economics since Paul Krugman.
I’m not sure I’d go that far, but that’s probably because I know Ben and respect him as a fine civil servant and a very good former Princeton professor. In fact, being a Republican at Princeton Faculty is not an easy thing to do.
So there, this isn’t personal, but, but, but, but, I think his stop-and-go policies, especially in the early 2000s, when he kept interest rates too low for too long, when he kept interest rates way too high. created -driven liquidity, when he took a strong dollar and turned it into a weak dollar and then all his faulty fine-tuning caused a boom in gold, commodities and homes – I think it was a big blunder and that blunder led to a financial collapse , especially a mortgage crisis that he had to bail us out of later.
It’s like a firefighter who lights the fire and then takes credit for putting it out. Not good. It reminds me of the mistakes J. Powell made almost 2 years ago.
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Bernanke was concerned about deflation after 9/11, so he wrote a helicopter crash in the money supply in the Major League, when George W. Bush’s tax cuts actually successfully boosted economic growth after 9/11.
I bring this up because Bush has moved to the supply side. He doesn’t get credit for it, but he should. He cut the top rate of personal tax and destroyed tax rates on capital gains and dividends.
So when everything was taxed less, including investment, we got more of it and the Bush boom didn’t require a big opening of the monetary taps. We did well, the supply side worked, the Laffer curve worked, but Ben Bernanke wasn’t looking and that got everyone in trouble. Sounds familiar?
Post-Covid, the V-shaped recovery in late 2020 and early 2021 was ignored by the Biden socialists and J. Powell’s modern monetary theorists. To remind?
Everyone cheered for a $2 trillion stimulus package. That is, everyone in the left camp, but we didn’t need it, it caused major inflation and J. Powell opened those monetary taps further and further. Even though the economy grew by 6% – bereaved by Donald Trump’s tax cuts, deregulation and energy dominance.
So, here we are again. Only it is a reverse rescue. Bernanke had to save America, he thought, by turning the faucets on and off and then back on. J. Powell kept the taps on, opened them further, and now he’s crunching ’til there’s no tomorrow.
I don’t know if this is modern monetary theory, but I do know that it was bad monetary practice in both cases. There is an easier and gentler way. Keep the dollar stable against commodities and real commodities, keep the spigots at medium open and we will have price stability. Leave the growth incentives to tax and regulatory and limited spending policies where it belongs.
The monetary leverage is for inflation, the fiscal leverage for growth. Starting with Ronald Reagan, Jack Kemp and Art Laffer and Steve Forbes and a whole bunch of us – we’ve been saying this for over four decades.
Now one more point about Ben Bernanke. I don’t know why he and others are so determined to save failing institutions. During that financial crisis, we had a chance to lose some real turkeys, like Fannie and Freddie – who should have been privatized or remembered the craziness: Bear Sterns was saved. Merrill was sold and Lehman had to fail. Whole pieces of AIG insurance could have been dumped or thrown away, but they were saved.
John Taylor of Stanford has often written that unknowingly erratic bailout policies have wreaked just as much, if not more, damage to the financial world as the opening of monetary faucets after the crisis hit us. Governments are not allowed to pick winners and losers.
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Federal Reserve Board chairman Jerome Powell is expected to testify before Congress on Wednesday, June 22, 2022 and Thursday, June 23, 2022. (AP Photo/Jose Luis Magana) (AP Photo/Jose Luis Magana / Associated Press)
Still, I find it incredible today that Fannie and Freddie are now owned by the US government, aka the taxpayers. We shouldn’t be bailing out student loans, mortgage lenders, gas prices, potheads, banks, auto companies, semiconductor companies, EV makers, wind and solar farms, and insurance companies.
How about make my day: no new bailouts or make my day: $31 trillion in debt has gone too far. Do not you think?
This article is adapted from Larry Kudlow’s opening commentary on the October 11, 2022 edition of “Kudlow