In his two days of Congressional testimony, Fed Chairman Ben Bernanke seemed incapable of admitting that perhaps his extraordinary experiments with monetary policy have failed to deliver as he advertised three or four years ago. Instead, he continually ran through a litany of supposedly unexpected factors, from the weather in the Midwest to the crisis in Europe, that have prevented his policies from producing a genuine recovery.
It seems clear that the Fed will continue to shower the economy with liquidity, whether or not there is any evidence that the monetary deluge actually produces a tangible benefit.
To bolster his claims of wise policy, the Chairman pointed out that he had saved a stack of opinion pieces written by his critics in 2008 and 2009 that contained failed predictions of inflation and dollar declines. One wonders if he has saved similar articles from 2004 and 2005 when Bernanke himself claimed that Fed policy was not leading to a housing bubble.
Back then he had dismissed housing bubble alarmists as being wrong, when in fact they were just early. Apparently he has not allowed for a similar ending with respect to the Fed's current policy mistakes.
While Bernanke may be correct in his assumption that his policies of 2008 and 2009 prevented a deeper contraction in the early months and years of the recession, he can't claim that those policies are producing lasting benefits.
Certainly our listless economy would suggest otherwise. I believe that absent Fed activism four years ago we would have gone through a shorter, sharper contraction, and we would now be on the road to a real recovery. But this is a possibility that Bernanke and his supporters will never dare to entertain.
What his policies did deliver was merely the appearance of economic recovery. But the price has been the inability of the economy to restructure in a way that would make genuine recovery possible. Years of monetary accommodation has only succeeded in creating an unhealthy dependence on cheap money.
Bernanke has insured that the ultimate collapse, when it comes, will be deeper and longer than it would have been had the Fed kept its hands off the printing press over the last four years.