It’s pretty rare for Bernanke for former Fed chair Ben Bernanke to say much of anything that makes any sense. He recently he did, just not in context.
“I don’t see anything magical about targeting 2 percent inflation,” Bernanke told a conference in Washington sponsored by the International Monetary Fund.
Given that inflation targeting is quite stupid, that sentence in isolation may cause some to believe common sense seeped into Bernanke’s brain.
Alas, his brain actually went into reverse: Bernanke Open to Raising Inflation Target Fed Struggles to Meet.
Former Federal Reserve Chairman Ben S. Bernanke suggested that he would be open to an increase in the central bank’s 2 percent inflation target.
“I don’t see anything magical about targeting 2 percent inflation,” he told a conference in Washington sponsored by the International Monetary Fund.
His comments come as the Fed and other major central banks are struggling to prevent their economies from falling into a disinflationary trap of diminished expectations. IMF officials have proposed that the monetary authorities raise their inflation goals to help limit the danger of future deflation.
Some economists, such as professor Laurence Ball of Johns Hopkins University in Baltimore, have called on the Fed to raise its target to 4 percent. Others, such as Scott Sumner of Bentley University in Waltham, Massachusetts, argue that the Fed should adopt a goal for the growth of nominal gross domestic product, rather than focusing on a price index.
Bernanke pointed to a number of practical difficulties in making a change in the Fed’s objective. Such a switch could cause confusion among the public about the central bank’s intentions and undermine its credibility, he said.[And pray tell, what credibility is that?]
Bernanke also made the case in his presentation for keeping the Fed’s balance sheet big in the aftermath of the financial crisis.[Is that an indication he is clueless about how to unwind it?]
“Most other major central banks have permanently large balance sheets and are able to implement monetary policy without problems,” he said.[Just like no one could see housing as a problem until the bubble burst?]
Bernanke said he was not making a recommendation about how big the balance sheet ultimately should be. Instead, he said, he was trying to encourage debate about the issue.
Open For Debate
If Bernanke genuinely wants debate, I am game. In fact, I bet we could raise millions of dollars for charity if he was.
But he not. He is no more willing to debate than my dead Aunt Martha is likely to ring my doorbell tomorrow.
Besides, please notice the framework for discussion. It is not about whether there should be an inflation target (of course there should be no such thing), but rather how high it should be and whether or not there should be any limits on Fed asset purchases.
But hey, since the Fed cannot hit 2% inflation, why not strive for 6%, 8% or 18%? What does it matter anyway?
Any idiotic number is as good as any other given the Fed has no credibility in hitting targets while ignoring every asset bubble that comes along. Besides, we all know that in spite of Bernanke’s comments, it really is magic.
It Really Is Magic
Link if video does not play Oh Ho Ho It’s Magic
Mike “Mish” Shedlock