Paul Krugman is now so far into outer space with ridiculous economic proposals that even Helicopter Ben Bernanke recognizes Krugman's proposals as "reckless".
Bloomberg reports Bernanke Takes On Krugman’s Criticism Ignoring Own Advice
Federal Reserve Chairman Ben S. Bernanke took on Nobel prize-winning economist Paul Krugman yesterday and called his advice to reduce unemployment by boosting inflation “reckless.”
“The question is, does it make sense to actively seek a higher inflation rate in order to achieve” a slightly faster reduction in the unemployment rate, Bernanke said yesterday to reporters after a Federal Open Market Committee meeting. “The view of the committee is that that would be very reckless.”
Krugman, whom Bernanke hired at Princeton University in 2000 when he was chairman of the economics department, said in a New York Times Magazine article that the Fed should raise its 2 percent inflation target to cut unemployment. Such a policy shift would align with Bernanke’s comment in 2000 that the Bank of Japan (8301) should pursue faster inflation to escape deflation, he said. Japan’s consumer prices fell 0.2 percent that year.
“While the Fed went to great lengths to rescue the financial system, it has done far less to rescue workers,” Krugman wrote. “Higher expected inflation would aid an economy” because it would persuade investors and businesses “that sitting on cash is a bad idea,” Krugman said.
The chairman spoke in response to a reporter’s question referring to Krugman’s story, titled “Earth to Ben Bernanke,” published April 24. The article cited “the divergence between what Professor Bernanke advocated and what Chairman Bernanke has actually done.”
Bernanke said pushing the increase in prices above the Fed’s 2 percent goal would risk undermining inflation expectations and erode the central bank’s credibility as a force for stable prices.”
“We, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable in that we’ve been able to take strong accommodative actions in the last four, five years,” Bernanke told reporters. “To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do.”
CPI Adjusted for Home Price Index (HPI)
The Fed kept interest rates at historic lows between 2002 and mid-2004. The last two rate cuts by Alan Greenspan were not justified at all, by any measure, and downright absurd considering the bubble brewing in housing prices vs. rent.
Allegedly the Fed held interest rates low to prevent "deflation". Instead it exacerbated "price deflation".
Clearly the Fed had no idea what it was doing, and still doesn't, (unless of course you believe this is a Fed conspiracy to deliberately screw the middle class). The result is bubbles and crashes of ever-increasing amplitude as the Fed chases its own tail. New bubbles have formed in the stock market and commodities right now.
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