31 Mar 2009

"What’s Bernanke Thinking?!"

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Since I’m speculating on motives, let’s turn to the Fed chairman. Let’s drop the super conspiracy theory and assume for the sake of argument that Bernanke really does call the shots. (In reality, I think it is entirely possible that Bernanke knows he can’t do such-and-such or else he might accidentally take too many sleeping pills.)

Now we know that presidents have always tried to expand the power of the Executive Branch. It’s no “conspiracy theory” to say that, it is simple Public Choice economic analysis.

OK so you run the Federal Reserve, and here you have this prime opportunity to write checks for trillions of dollars while the CPI actually falls. (!!!) You’ve got a pretty good gig going, because no political leader can really challenge you, since a vote of no confidence in the Fed chairman would literally ruin the world economy.

So your one worry is that you won’t be reappointed when your present term expires (in 2010). What do you do? Why, I think getting the biggest corporations in the world–not to mention other central banks–utterly dependent on your handouts is a pretty shrewd move. If Obama starts floating trial balloons about canning you, you can float trial balloons about “preventing inflation expectations from becoming unmoored” which would require you to raise interest rates to 30%. I think the president might back off after Goldman Sachs or the British government called him up and had a little chat.

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