In my view, the long-term damage done by Fed Chairman Ben Bernanke will be looked back on through history with equal scorn as that eventually heaped on Alan Greenspan. They each completely ignored the obvious negative consequences of holding interest rates too low for too long, with Greenspan having substantial responsibility for the housing bubble and Bernanke likely to have responsibility for inflation as well as for aiding and abetting out-of-control federal deficit spending.
No doubt that one problem is the Fed’s “dual mandate” in which they are required to focus not just on price stability (the proper role of a central bank) but also on employment (not a proper function of a central bank, not least because, as proven over the past couple of years, they have very little ability to influence employment, particularly in the presence of terrible fiscal and regulatory policy coming from the White House and Congress.) Congress should remove the Fed’s second mandate and either not replace it or else replace it with a mandate of focus on a stable currency.
In any case, the Fed has recently embarked on its third effort at “Quantitative Easing,” which is code for “we have nothing left to try because all our usual tools have failed, and we’re not at all sure this will work either — especially because we can’t prove the first two times did anything other than cause a bubble in the bond market.”
But let’s give the Fed the benefit of the doubt and judge them by their stated goal of boosting the economy and employment with their “nonstandard” (read “desperate”) approach.
According to economist Brian Wesbury, the Fed deserves precious little credit on that score, though they have certainly planted a ticking time bomb beneath the American economy: