Professor Mark J. Perry's Blog for Economics and Finance
Posted 3:07 PM Post Link
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Is that good?
Other than the current fad of government-bashing, I see no reason for vilifying Bernanke. Indeed, he seems like a very serious and sober student of the Great Depression, whose actions as Fed Chief may have averted another one.The fact that the private markets way over-invested in real estate is not Bernanke's fault, anymore than the dot.com bubble was Greenspan's fault. Gee, do you think it might be the people buying dot.com stocks who were at "fault"? Gee, do you think the heavy private-sector buying of MBS and CMBS instruments who were at "fault"? Do you think institutional investors are responsible for their actions?The fact is, we are entering a long era of chronic global capital gluts. This will mean booms and busts. I suspect, or at least hope, this will soon lead to a status in which downturns are viewed as buying opps, not cause for vilification of whatever political party you happen to hate.The bust-train wreck happened on Bush's watch. But I think he had little to do with it. Obama has even less to do with the coming correction and recovery.Overzealous investing in MBS and CMBS by private-sector investors is the proximate cause of the bust. Consider the CMBS market in particular. No one is compelled to either issue or buy CMBS, and they are rated by Moodys, S&P, Fitch etal. It is a free market, with largely institutional players. Very little government intrusion.Right now, many office and commercial properties are selling at half-price. The CMBS bonds look like very stupid investments, and there is a bust of sorts. It could get worse. The mezz debt and other debt higher in the capital stack? I guess they are dead, period. Again, very sophisticated buyers, who made a mistake by investing at the peak--just like investors have made through history. This is Bernanke's fault?Jeez, why is nobody ever responsible for their own behavior? "Bernanket made me do it."And, "the bartender kept serving me drinks."
It's likely the Bernanke Fed was the root cause of the recession, because of restrictive monetary policy (with contractionary fiscal policy).Would accommodative monetary policy been inflationary? I doubt it, because there were too many assets and goods in the U.S. economy, while U.S. actual output was below potential output throughout most of the 2000s. Also, the severe oil shock wouldn't affect U.S. GDP much, because U.S. production became "lighter."There were too few dollars in the U.S. economy, i.e. in the private sector, because foreigners absorbed them. More dollars in the U.S. economy would've placed greater production strains on export-led economies than on the U.S.
Bernanke is the best we've got. It is possible to do better, but we don't have anyone viable right now to replace him. There are no better candidates.
It almost seems Bernanke wanted to test his Great Depression theories. Anyway, he has the experience now.The cycle turned into a boom. So, it would've ended badly anyway. However, it was initiated by export-led countries. All the U.S. could do was respond appropriately, because it has little or no control over foreign economic policies.
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Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.
Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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