As I noted in Bubbles are not Inflationary, most finance guys I know think Alan Greenspan’s performance was overrated. Yet, because macroeconomics can be so esoteric, the public seems to always hail the sitting Federal Reserve Chairman as a genius. So for the first time in my life, I was surprised to find myself agreeing with Massachusetts Rep Barney Frank today when he took on Ben Bernanke.
Like Greenspan, Bernanke is obsessed with taming inflation, even if it means halting growth. As I noted in this Greenspan rant, Hooray for Greenspan halting inflation! He caused the market crash, precipitated the recession, and by Greenspan’s own admission, he brought on the housing bubble. But thank God he tamed inflation!
Following in Greenspan’s footsteps, Ben Bernanke told the House Financial Services Committee today that inflation, not slowing growth, was the biggest risk to the nation’s economy.
Rep. Barney Frank responded he was a “little puzzled” as to why the central bank is more concerned with combating inflation that combating slowing growth.
Bernanke responded, “In order for this expansion to continue in a sustainable way, inflation needs to be well controlled.”
To which Frank fired back: “I can understand it (inflation) being a concern. I don’t understand how … it outweighs the other.”
To use Frank’s words, I find the Fed’s position “troubling.” Reread the section in bold. Is Bernanke suggesting the need to raise rates in order to sustain an expansion? Sort of like how Greenspan sustained the expansion in 2000-2001? I find it hard to believe anyone is so bullish on a 2007 economic expansion that they think it needs to be tamed from inflation. Maybe someone can explain this in the comments. Bernanke’s position is troubling indeed.