< the markets are going to force him to react in a manner that reveals that his decisions have placed them seriously behind the monetary "power curve".>
This is not Bernanke's fault IMO. The problem lies in the system itself. I'm an electrical engineer, and I don't know if this concept makes sense outside of electronics, but:
whenever you construct a system that has a huge amount of gain and positive feedback, the system becomes digital: a comparator. It gets latched in the "high" state, and the only way to take it out of the high state is to drive the input very low. Then, the output finally swings low, but there is no stabilizing it in between. There's simply too much positive feedback.
In much the same way, our economy gets latched in "expansion mode" and grows without bounds, until the brakes get hit in some way. Then, the contraction cascades and it latches into recession.
In our financiocentric world, we have a system with way too much gain and way too much positive feedback. The gain comes from the fractional reserve system of money, and much of the feedback also comes from good ol' human emotion - herding. There is no correct level of interest rates for a stable economy - the impact of a given level of rates depends dramatically on the instantaneous state of the system, which swings quickly between expansion and recession states.
Not saying I could fix it - just acknowledging that, for Bernanke, it's like driving a car that one minute has the handbrake off your grandmother's bicycle, and the next, the airbrakes off a tractor trailer.
BC |
