Bernanke’s reflections reveal that the Fed is incapable of summoning the courage, to coin a phrase, to deal with the world as it actually is. (Photo by Chip Somodevilla/Getty Images)
Ben Bernanke’s memoir of the Great Recession, a book called The Courage to Act, is out. In summarizing the book’s argument in an article the other day, Bernanke made several claims of fact that purport to justify his actions as chairman of the Federal Reserve during the crisis years. The claims are not close to being fact.
In his article, Bernanke wrote the following: “if there is a problem with inflation, it isn’t the one expected by the Fed’s critics, who repeatedly predicted that the Fed’s policies would lead to high inflation (if not hyperinflation), a collapsing dollar and surging commodity prices. None of that has happened.”
None of that has happened? Two of the three happened.
First, the collapsing dollar. The Federal Reserve’s own data have it that against major currencies, the dollar depreciated during the years of Bernanke’s Fed leadership to a greater degree than at any point in the 43-year history of the statistic.
In August 2011, the average exchange rate of the dollar against such currencies as the euro, the Canadian dollar, the yen, pound, and Swiss franc was the lowest ever. In Bernanke’s last five years as Fed chair, from spring 2009 until early 2014 (when Bernanke left the Fed), the dollar was never above the lowest major exchange-rate average of the pre-Bernanke period, dating back to 1973. This was a period that included the major devaluations of the stagflation era of the 1970s/early 1980s and the sluggish early 1990s.
Second, surging commodity prices. When Bernanke became Fed chair in February 2006, a barrel of oil had just hit an an all-time high of $68. For the nine years of Bernanke’s term, the oil-price graph is essentially a perfect regression line upwards at a constant yearly increase of 6.5%. Statistical noise includes a spike to $145 in the summer of 2008 and a plummet to $30 six months later. When Bernanke left the Fed in 2014, oil was at $96.
Gold, for its part, churned up from $560 per ounce as Bernanke became chair in 2006, nosed to about $1000 as the crisis hit in 2008, dove a little, then plowed over $1800 in 2011 and settled at circa $1300. Gold is the classic, worldwide hedge against questionable United States monetary policy. It broke records as Bernanke experimented with quantitative easing, is two-and-a-half times today what it was ten years ago, and sits at double-digit percentages above its pre-crisis peak.
The all-commodity indexes have been stable, excepting the vicissitudes of 2008-09 and a decline since Bernanke left the Fed. “None of that has happened” with respect to a prediction of “surging commodity prices” on account of Bernanke’s monetary policy cannot abide what has happened in the oil and gold markets, nor what has happened in the major currency markets. The assertion is invalid.
As for inflation, the Consumer Price Index, that faded warhorse of the Department of Labor, it has indeed been stable at 1-3% since the 1990s. This is hardly news. Once the CPI fell suddenly from its unprecedented 8% averages of 1973-78 and 12% of 1979-81, to 3% in 1983 and 2% in 1986 and parked there, the CPI has been noiseless—stable. To claim that it remained so in the years after 2008 is to say approximately nothing. Trend held.