March 19th, 2009
07:45 PM GMT
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NEW YORK - This week Ben Bernanke threw out the central bank rule book.

Bernanke has been picking up new nicknames as he battles the financial crisis.
Bernanke has been picking up new nicknames as he battles the financial crisis.

First he did a sit-down interview for a major media outlet that aired just two days before a policy meeting, in violation of the traditional black-out period.

He then shocked markets by announcing the Fed would start buying billions in long-term treasury bonds, as well as billions more in mortgage-backed debt and agency bonds.

The response has been dramatic. Mortgage rates dipped below 5 percent Thursday.

Almost everyone I know is calling to try and refinance. Officials hope new home buyers will also move off the sideline and start to chip away at the inventory of unsold homes.

Bernanke is following through on his promise to use every tool the Fed has to help fight this global crisis.

In cartoons he has gone from being depicted as Helicopter Ben, willing to throw money into the economy, to Bomber Ben ... dropping crates full of cash across the U.S. economy.

Most traders and analysts are applauding Ben's bold action. Some, however, do worry the solution will just spawn new problems, especially rising inflation.

I'm sure Bernanke is worried about that too, but in triage you do what you can to save the patient and worry about everything else later.

I don't know if he has the right answer, but for now I am willing to put my trust in Ben.

What about you? Do you think the Fed chairman is taking the right approach or is he just laying the ground work for another bubble?



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soundoff (11 Responses)
  1. Manny

    The growing reliance upon consumer debt is, in large part, a product of a sense of entitlement fostered by marketing. There has been a continuous rise in expectations. Possessions which were obtained by the early boomers in the 50’s and 60’s are now considered a rite of passage for young couples. The mega-house, the upscale cars and foreign travel which were once earned after a lifetime of work are now expected at far too earlier an age. This crisis of consumer debt is a result of unrealistic expectations raised in order to uphold an economy that was false.

    March 20, 2009 at 3:06 am |
  2. GW

    Ben "B52" Bernanke is simply laying the groundwork for a much larger round of inflation down the pike. The Brits are seeing this now... Europe is seeing it now. China is trying to stoke inflation right now as well. As the $US slides down that slippery slope called monetizing the debt and all those greenbacks start making their way through the system, plan on seeing double digit inflation going into 2011. You heard it here first.

    March 20, 2009 at 5:11 am |
  3. John

    The American Dollar is more than just a currency of exchange.
    It represents national and world-wide stability, law and order.
    Ruin that Dollar and you will have chaos.

    March 20, 2009 at 6:01 am |
  4. Bhowell

    Wrong allegory, in triage you choose which patients are salvageable and which ones aren't. You don't waste precious supplies (read money) on someone who is going to die any way, why do we keep throwing good money after bad? Who "bails out the common man who goes bankrupt because of decisions into which he/she had no input?

    March 20, 2009 at 4:33 pm |
  5. radnor

    GW, Europe is getting massive inflation. Some countries are recording record low inflations atm. UK might be feeling it a bit, but hardly life-breaking. I guess in the UK they did what they needed to do. Devaluating a bit of the BP was part of the job. But like part of the plan it recovered pretty well.

    The thing is, i really don't know what Ben should be doing. They seems risky and bold moves. I just wish him the best. Don't worry, when inflation goes up, he will just increase the interest a bit, and lets hope the economy would be in decent shape then.

    I just hope he has the same balls Trichet had in the last months.

    March 20, 2009 at 8:25 pm |
  6. Andreas , Stockholm

    This latest fad called 'quantitative easing' is a grave mistake. It does not address the real problem – incapacitated securitization. One can debate whether or not highly leveraged securities is good or bad but the fact remains that they are the modern vehicle of capital flows. When you have something foul in the water tank you don't just keep filling it up, instead you clean the tank. As long as these frozen 'toxic assets' are not dealt with resolutely nothing including quantitative easing is going to solve this. The United States needs to deal with it's debt on all levels, there is no magic solution and there definitely is no returning to old practices. Although most English and American commentators keep complaining over Europe and the reluctance of the EU to follow suit we should remember that the Eurozone does not have the same problem, something the UK/US seem to want to ignore or dismiss.

    March 21, 2009 at 11:25 am |
  7. Lim Boon Chuan

    What Bernanke did is IMHO, throwing a meat bun to a hungry dog. You will never see the money again. Whats more with inflation and a rapidly slowly economy, we may get stagflation instead, which will worsen the current situation. I rather he did nothing. Weakening the Dollar will have the effects of what happened in the 2008, where traders buy up commodities to hedge against the loss of value of a rapidly devaluing dollar.

    March 21, 2009 at 12:10 pm |
  8. Roland

    All I see is debt. Consumers, business and governments (local and federal) are in trouble because of debt.
    For some reason, the fed and the federal government believe that creating more debt for consumers, business and government will solve the problems.
    This is impossible. You cannot buy yourself out of debt!
    How do you solve this problem? By spending less then you earn, not more!!!! Sooner or later this issue will have to be resolved. And it will be painfull. But postponing it will only result in more downturns and a worse situation every time.

    March 22, 2009 at 9:59 am |
  9. ELizabeth Madden

    When will the banks resume commercial lending? I have many transactions on the books that are frozen due to the banks. If one of those transactions were funded I wouldn't go out of business. I don,t have time to wait . Thanks

    March 22, 2009 at 4:35 pm |
  10. Simone

    Fed stays with steady funds rates. Dramatic consequences from its past actions in the market will ease up economic policies this year. As inflation is a ghost of greed game, so I will think nobody is expecting bold-game to continue next year. U.S and Canada will need a specific focus to reaffirm the monetary market.
    Economic boiling-point has gone to the top of confusion ?

    March 22, 2009 at 8:13 pm |
  11. Brian, London

    The concern regarding inflation as the inevitable consequence of a quantitative easing program is entirely misguided. Inflation is not a result of creating new money, but rather of excess aggregate demand over supply. Right now, the US and the other OECD economies have a several trillion dollar shortfall of demand vs supply. Bomber Ben should go even further and finance the stimulus package, a major tax cut, and rebuilding charity endowment funds, all with new money created through QE. The Fed’s balance sheet can be contracted to control expected inflation as necessary in the years to come. Keep flying Ben!

    March 30, 2009 at 9:17 pm |

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