 Bernanke
portrayed as inflation fighter
David Shvartsman
February 17, 2006
Federal Reserve Chairman Ben
Bernanke, once tagged "Helicopter Ben" for his comments
on money creation, is now being portrayed in the media as an
inflation fighter. In a Reuters article entitled, "Bernanke
comes out swinging on inflation", the Chairman is reported
to have taken the position that "low inflation was key to
central banking success". The article described his stance
as "a deliberate bid to counter fears he may be soft on
price pressures".
This news strikes as ironic
on several levels. First, the money and credit creation that
the Federal Reserve employs to guide the economy is the source
of inflation. In other words, inflation is a sure byproduct
of undisciplined money creation. The assertion that low inflation
is "key to central banking success" is akin to stating
that low farm runoff levels are key to agricultural success.
A central bank creates money and credit, in turn fueling inflation,
just as a farm produces crops or livestock, releasing runoff
of nitrogen and other pollutants in the process.
The only way a low inflation
level can reflect success on the part of a central bank is as
a management tool; it is an indication that relatively sound
policies are being pursued and that public expectations about
inflation and soundness of our monetary system can be sustained.
So in effect, the news regarding inflation can be seen as public
relations event. Little wonder then, that great care is taken
in computing and presenting this data for public consumption.
It takes a little bit of skill
and ingenuity, but negatives can be turned into positives. To
push the farm analogy a little further, witness the manner in
which the problem of runoff and pollutants is handled by farmers
and resource councils. In order to mitigate negative environmenal
effects from farming, a New Zealand regional
council aligns the interests of the environment with those
of commercial farmers. Under the banner exclamation, "Clean
water is good for our economy", the council's text goes
on to exhort the positive benefits accrued from runoff management.
"A big part of marketing our agricultural products to
overseas customers is our high environmental standards and clean,
green image...keeping our streams and rivers clean can help promote
our agricultural products." So the lesson here is the
importance of putting a positive spin on the sometimes negative
byproducts of commercial endeavors.
Getting back to the commercial
endeavor that is the Federal Reserve Bank: while Bernanke's
public stance on inflation may seem unsurprising to current observers
of the Fed, it is significant in one regard. The current spotlight
on American central bank officials is so glaring that a man in
Bernanke's high post is almost obliged to pronounce his intentions
to the markets and the public at large. This, in spite of the
fact that the Federal Reserve is an independent
organization, unaccountable to American voters or the legislative
branch in its decision making.
So why does the Fed Chairman
bother to make these statements at all? Perhaps it has something
to do with speaking to the court of public opinion. That could
be the motivation behind Bernanke's "deliberate bid to counter
fears" that he is "soft" on inflation. Furthermore,
Chairman Bernanke took the opportunity during his testimony before
the House of Representatives Committee on Financial Services
Wednesday to reassert his support for the policies of the Greenspan
Fed. To quote further from the afore mentioned Reuters article,
"My intention is to maintain continuity with this and
the other practices of the Federal Reserve in the Greenspan era.
I believe that, with this approach, the Federal Reserve will
continue to contribute to the sound performance of the U.S. economy
in the years to come."
Could it be that the Federal
Reserve, a once avowed non-political structure, is assuming the
politically pleasing glaze of transparency in order to help advance
its ever evolving and expanding role in the economy?
David Shvartsman
email:
dshvartsman@hotmail.com
http://financetrends.blogspot.com/
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