Bernanke’s Legacy: A Weak and Mediocre Economy

Tyler Durden's picture

Submitted by John Cochran via the Ludwig von Mises Institute,

As Chairman Bernanke’s reign at the Fed comes to an end, the Wall Street Journal provides its assessment of “The Bernanke Legacy.” Overall the Journal does a reasonable job on both Greenspan and Bernanke, especially compared to the “effusive praise from the usual suspects; supporters of monetary central planning. The Journal argues when accessing Bernanke’s performance it is appropriate to review Bernanke’s performance “before, during, and after the financial panic.”

While most assessments of Bernanke’s performance as a central banker focus on the “during” and “after” financial-crisis phases with much of the praise based on the “during” phase, the Journal joins the Austrians and John Taylor in unfavorable assessment of the more critical “before” period. It was this period when the Fed generated its second boom-bust cycle in the Greenspan-Bernanke era. In the Journal’s assessment, Bernanke, Greenspan, and the Fed deserve an “F.” While this pre-crisis period mostly fell under the leadership of Alan Greenspan, the Journal highlights that Bernanke was the “leading intellectual force” behind the pre-crisis policies. As a result of these too loose, too long policies, just as the leadership of the Fed passed from Greenspan to Bernanke, the credit boom the Fed “did so much to create turned to mania, which turned to panic, which became a deep recession.” The Journal’s description of Bernanke’s role should be highlighted in any serious analysis of the Bernanke era:

His [Bernanke’s] role goes back to 2002 when as a Fed Governor he gave a famous speech warning about deflation that didn’t exist [and if it did exist should not have been feared]. He and Mr. Greenspan nonetheless followed the advice of Paul Krugman to promote a housing bubble to offset the dot-com crash.


As Fed transcripts show, Mr. Bernanke was the board’s intellectual leader in its decision to cut the fed-funds rate to 1% in June 2003 and keep it there for a year. This was despite a rapidly accelerating economy (3.8% growth in 2004) and soaring commodity and real-estate prices. The Fed’s multiyear policy of negative real interest rates produced a credit mania that led to the housing bubble and bust.

For some of the best analysis of the Fed’s pre-crisis culpability one should turn to Roger Garrison’s excellent analysis. In a 2009 Cato Journal paper, Garrison (2009, p. 187) characterizes Fed policy during the “Great Moderation as a “learning by doing policy” which, based on events post-2003, would be better classified as “so far so good” or “whistling in the dark.” The actual result of this “learning by doing policy” is described by Garrison in “Natural Rates of Interest and Sustainable Growth”:

In the earlier episode [ boom-bust], the Federal Reserve moved to counter the upward pressure of interest rates, causing actual interest rates not to deviate greatly from the historical norm. In the later episode [housingbubble/boom-bust], the Federal Reserve moved to reinforce the downward pressure on interest rates, causing the actual interest rates to be exceedingly low relative to the historical norm. Although the judgment, made retrospectively by economists of virtually all stripes, that the Fed funds target rate was “too low for too long” between mid-2003 and mid-2004, it was almost surely too low for too long relative to the natural rate in both episodes. (p. 433)

Given this and other strong evidence of the Fed’s role in creating the credit driven boom, the Journal faults “Mr. Bernanke’s refusal to acknowledge that the Fed made any mistake in the mania years.”

On the response to the crisis, the Journal refrains from the accolades of many who credit the Fed led by the leading scholar of the Great Depression from acting strongly to prevent another such calamity. According to the Fed worshipers, things might not be good, but without the unprecedented actions and bailouts things would have been catastrophic. The Journal’s more measured assessment:

Once the crisis hit, Mr. Bernanke and the Fed deserve the benefit of the doubt. From the safe distance of hindsight, it’s easy to forget how rapid and widespread the financial panic was. The Fed had to offset the collapse in the velocity of money with an increase in its supply, and it did so with force and dispatch. One can disagree with the Fed’s special guarantee programs, but we weren’t sitting in the financial polar vortex at the time. It’s hard to see how others would have done much better.

But discerning readers of Vern McKinley’s Financing Failure: A Century of Bailouts might disagree. Fed actions, even when not verging on the illegal, were counter-productive, unnecessary, and contributed to action freezing policy uncertainty which contributed to the collapse of the velocity of money. McKinley describes much of what was done as “seat-of-the-pants decision-making” (pp. 305-306):

“Seat of the pants” is not a flattering description of the methods of the regulators, but its use is justified to describe the panic-driven actions during the 2000s crisis. It is only natural that under the deadline of time pressure judgment will be flawed, mistakes will be made and taxpayer exposure will be magnified, and that has clearly been the case. With the possible exception of the Lehman Brothers decision ... all of the major bailout decisions during the 2000s crisis were made under duress of panic over a very short period of time with very limited information at hand and with input of a limited number of objective parties involved in the decision making. Not surprisingly, these seat-of–the-pants responses did not instill confidence, and there was no clear evidence collected that the expected negative fallout would truly have occurred.

While a defense of some Fed action could be found in Hayek’s 1970s discussion of “best” policy under bad institutions (a central bank) where he argued that during a crisis a central bank should act to prevent a secondary deflation, the Fed actions went clearly beyond such a recommendation. Better would have been an immediate policy to end the credit expansion in its tracks. The Fed’s special guarantee programs and movement toward a mondustrial policy should be a great worry to anyone concerned about long-term prosperity and liberty. Whether any human running a central bank could have done better is an open question, but other monetary arrangements could clearly have led to better outcomes.

The Journal’s analysis of post-crisis policy, while not as harsh as it should be, is critical. Despite an unprecedented expansion of the Fed’s balance sheet, the “recovery is historically weak.” At some point “a Fed chairman has to take some responsibility for the mediocre growth — and lack of real income growth — on his watch.” Bernanke’s policy is also rightly criticized because “The other great cost of these post-crisis policies is the intrusion of the Fed into politics and fiscal policy.”

Because the ultimate outcome of this monetary cycle hinges on how, when, or if the Fed can unwind its unwieldy balance sheet, without further damage to the economy; most likely continuing stagnation or a return to stagflation, or less likely, but possible hyper-inflation or even a deflationary depression, the Bernanke legacy will ultimately depend on a Bernanke-Yellen legacy. Given, as the Journal points out, “Politicians — and even some conservative pundits — have adopted the Bernanke standard that the Fed’s duty is to reduce unemployment and manage the business cycle,” the prospect that this legacy will be viewed favorably is less and less likely. Perhaps if the editors joined Paul Krugman in reading and fully digesting Joe Salerno’s “A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis,” they would correctly fail Bernanke and Fed policy before, during, and after the crisis.

But what should be the main lesson of a Greenspan-Bernanke legacy? Clearly, if there was no pre-crisis credit boom, there would have been no large financial crisis and thus no need for Bernanke or other human to have done better during and after. While Austrian analysis has often been criticized, incorrectly, for not having policy recommendations on what to do during the crisis and recovery, it should be noted that if Austrian recommendations for eliminating central banks and allowing banking freedom had been followed, no such devastating crisis would have occurred and no heroic policy response would have been necessary in the resulting free and prosperous commonwealth.

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SilverIsKing's picture

Bernanke's Legacy: do as you're told and you'll be taken care of.

fonestar's picture

I'm sure it looks weak if your sales are down.  How does it look if you're living in a tent or watching your kids go to school hungry?

nope-1004's picture

His legacy?  A life of public lies.  Plain and simple.


Chupacabra-322's picture

Since 1871 THE UNITED STATES, CORP. has been a lie & Fraud .

new game's picture

the bernank left the patient on life support requiring a drip that can never end.

the drip kills the patient...


flacon's picture

EPIC last paragraph! Totally EPIC! Read it again, and again. Print it out and shove it up your economics professor's nose. 

NoDebt's picture

Whose kids are going to school hungry?  Show me.  If you can't plump your kids up to 80% body fat with the assistance programs available to EVERYONE in the US these days, then feeding your kids is definitely not high on your priorities list anyway.

Golden Showers's picture

Do you live in a tent?

Are your kids hungry?

Fuck you, I'm eating.

Please, tell me how it "looks".

fonestar's picture

fonestar's virtual children go hungry every night.  There's not enough bits to make ends meet.

satoshi911's picture

You can't buy a tent with BITCOIN, then what's the use? I thought overstock had ton's of tents that kmart and walmart couldn't sell?

Shit foney you got enough BTC's to buy a school quit your bitching.

Bitcoin doesn't buy food? Are you sure?

DoChenRollingBearing's picture

Send me enough Bitcoin, I'll send you a tent, no problem.



(not my red, some of your comments ARE interesting)

The Gooch's picture

The cheesespoke.

Keep enabling the FED by legitimizing THE FED.

Remember the U.S.S. Liberty.

booboo's picture

I know this goes without saying but just in case you are still convinced that this was just some "irrational exuberance" or bad break. Take special note to the "inflation THEN deflation" part. They have a plan.

  "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Thomas Jefferson

Dr. Engali's picture

While the premise is relevant...... That's one of the best unquotes passed around the internet.

akak's picture

Particularly as the words, if not the actual concepts themselves, of "inflation" and "deflation" would not even pass into the English language for a good century after this supposed quote was made.  Jefferson could never have uttered such a quote, and it would have been nothing but gibberish to anyone circa 1800.

LeisureSmith's picture

Speaking of a tainted legacy, watch Kerry shit a brick when he gets shouted down by some german protester.


SilverIsKing's picture

Kerry is the epitome of a douche. Really just fits like a glove.

Baldrick's picture

lol. bet he had to visit the loo after that!

akak's picture

Please, somebody break one of Kerry's legs, so we can justifiably shoot him and put him out of our misery.

sgorem's picture

fuck the legacy, where's the epitaph.............

prains's picture

Bernanks Legacy is as a BALL sucker of the 0.1%

DoChenRollingBearing's picture

I can understand why Bernanke, Paulson & Co. were unnerved in 2008 when it looked like the whole world was going down the tubes, and so went in and bailed almost everyone out.

With that said, everything since 2009 has just been juice and cookies for the banksters and the 0.01%.

Golden Showers's picture

My grandfather put himself through med school working at timkin bearings at night.

He made house calls into the late 80's, after ww2. He couldn't marry because his baby was a school teacher. She could not teach an be married.

2009 was 5 years ago.

Let's talk about friction: either you're the juice, or you're the cookies. Are you the bearing or the race?

After 5 years, for all your smarts and insightful comments, this is your observation?

As my employer says, you're only as good as the last fries you served.

Not meaning disrespect, or wanting to fight you. But, I have to ask: are we tired out? Is this it? Are we single serving friends?

DoChenRollingBearing's picture

Bearing Guy (57) learned early on that Timken was not his friend, as Timken had their distributors already in Peru and had no desire to sell to us.

So, we dance with who brung us: Korea, with some Chinese and Japanese product.


When I was watching the markets crater in Sept and Oct 2008, it looked pretty damn scary to me.  I might have done the very same things they did!  Maybe slightly less.  I lost a lot of money at that time.  That day the Dow went down 777 points I had just arrived to JFK (from vacation) and watched those last awful 30 minutes on CNN on the monitors.  NONE of the suits standing with me there watching could say anything other than the occasional "Holy Shit..."

Afterwards, of course, it has been just sweet gravy for the banksters.


I have been a buyer of gold since the 1980s.  So, in that sense, yeah, I serve myself ONE COURSE: gold!  Since 1995 I have been a net seller ("poco-a-poco") of stocks and bonds.

NoDebt's picture

Serious alcoholics don't stop drinking on a whim one day.  They stop only when the drinking causes them such pain they "hit bottom" and become open to a different path.

Anyone think we're there yet?  Me neither.  And, by the way, this addiction didn't just start in 2008 or any small number of years before 2008.

Only thing going to get us to quit drinking at this point is more drinking.  Bottoms up, my friends.

Golden Showers's picture

Beg to differ. Only weak, bitch ass alcoholics stop drinking when their drinking causes them such pain they hit bottom. Serious alcoholics pass legislation. Get your facts straight.

Your bottom is up. Speak for yourself, ho.

NoDebt's picture

"Speak for yourself, ho."

I always do.  You?

NoDebt's picture

I didn't realize I was taking on such an intellectual giant.  Apologies.  I concede the point.

DoChenRollingBearing's picture




Almost all of us who had to quit drinking first had to hit some kind of bottom, a very real one.  No, I don't think the markets or just about anything else is at "the bottom" yet either.  More pain coming...

I might dispute the "Bottoms up, my friends." part, but your point is very well taken.

+ 1, amigo

Ghostdog's picture

Dean Wermer addresses Ben "Flounder" Bernanke": "Fat, Drunk & Stupid is no way to run an economy, son"

superflex's picture

But the Goebbel's inspired media says the economy is fine.



i_call_you_my_base's picture

Bernanke's legacy is that he enabled the financialization of the US economy, built on the back of massive, systemic corruption, which in turn destroyed any hope that America would have a future. He is a scumbag and a traitor.

booboo's picture

Bernake's Fed bio reads as thus: "Ben Bernanke, born in the backwoods and suckled by a bear, he's got four rows of jaw teeth and an ass full of hair......"

Yea it goes on but you get the drift of how they view their own.

Hughing's picture

They all suck, unless you sell paper

Dr. Engali's picture

” At some point “a Fed chairman has to take some responsibility for the mediocre growth — and lack of real income growth — on his watch.”

For God's sake. There is nothing that the federal reserve can do about income except destroy a people's buying power. Wages have been declining in real terms since we decoupled with gold in 1971, then you add the double whammy of globalization and the American worker has no chance of a decent wage.
The fact that the central planners of the world looking towards the fed for income growth is ludicrous.

NoDebt's picture

It's asking the drug dealers to clean up the neighborhood because they understand the drug problem better than anyone.

Cashcollateral's picture


It's exactly this statement which typifies the problem right now: "the Fed Chairman has to take some responsibility for the mediocre growth". Central Banks cannot and should not be expected to be the sole source of growht. All this "dual mandate of inflation and employment" assigns accountability to a metric the Fed is comepltely unable to control. All the Fed can do is control the supply of money. It cannot control who has it and what they choose to do with it. Only fiscal policy does that. 

Time for the White House to stop abdicating responsibility for the economy to a private institution limited in scope and power.

satoshi911's picture

Bernanke is GONE, ... please somebody tell the Retards  to change the BOT program to YELLEN.

Please somebody, its a waste of keystrokes to focus on Bernanke, fuck might as well be talking about Jekyll Island.

If you don't FOCUS on the future, you will not have a future.

The past is done.

Why the fuck hasn't ZH posted the new Schiff story about YELLEN taking QE to $100 billion/month.

Me thinks that ZH is actually trying to keep people from paying attention to what AIPAC is doing today.


Radical Marijuana's picture

Here are  a couple of links to relatively recently published videos that put the Bernanke Legacy into historical perspective, as latest episode in the runaway exponential growth of triumphant organized crime dominating the American economy, in ways where the parasites, both above and below, are killing off their host:

Here Comes The Next Great Depression - Mike Maloney

Every transaction is manipulated,
because "money" is manipulated!


Money and Alchemy -- The Banking Mafia

"The Money Scam is hidden right out in the open, yet buried in complication and confusion. A retired banker describes simply, the world's Money Scam and the reason every country is now going bankrupt. Private bankers have stolen the money creation process, and whereas once our money was created by the governments, debt-free, it is now created out of thin air and issued as debt with interest charges. In today's banker controlled world, money = debt, debt = slavery and therefore money = slavery --- our monetary systems have become systems of enslavement. Money is created out of nothing, issued as debt, not enough money is created for the future interest payments and inflation steals our savings. The money creation process should be taken away from the banks and given to the governments who can create money debt-free, interest-free. This is how it used to be done and we needed no income taxes. Finally, it is explained what we should do to stop supporting the money scam."

Our Enslavement. - Money and Monsanto

That 20 minute video summary of a longer documentary
was just another classic reactionary revolutionary recital:

Good analysis of problems, followed by bullshit solutions,
since it remains within old false fundamental dichotomies.

Ironically, this video is on YouTube,
which is obviously "successful" since
that is integrated into money system.

The deeper issues are always the paradoxical problems
with respect to having better murder systems to back up
better monetary systems, since 'money' is NECESSARILY
based on measurement backed by murder, and "illusions"
are as "real" as the potential for human suffering exists.

There are NO genuine resolutions to chronic problems
other than those which include different death controls.

Cacete de Ouro's picture

"Gold is tradition"

ye right, BennieFuck excuse me while I allow the hoards to smash your smarmy face in

DeusHedge's picture

How about he did the worst (qe) he could without betraying the American people. If there are such people left to betray. I'll trust Bernake and the fed when they tell the government to go **** off.

lunaticfringe's picture

The Federel Reserve exists to provide an unlimited credit line to Congress. Absent a central bank, Congress could not misappropriate power and money that it does not have. The resulting effect is eternal debt slavery, inflation, dollar destruction, wars financed without end.

Of course this only ends one way. All that remains to be seen is which President and Congress will be holding the bag when the implosion finally occurs. That's all we are really talking about at this point.    

CerpherJoe's picture

Unfortunately Bernanke studied the Depression so much he actually has led us through a second one. Though not quite, it's beginning to feel alot like the '30s is it not?

RaceToTheBottom's picture

The Bernanke cannot be viewed without the lens of the Greenspam.

While his path was somewhat influenced by the Greenspam, I am not sure he could not have picked a different path, or stopped short of complete WS capilulation.


Therefore the Bernank should be viewed as even worse than the Greenspam.  Quite an achievement