Ben Bernanke Has a Plan to Fight Inflation
July 21, 2009 by Miranda Marquit
Filed under Finance
One of the biggest concerns associated with all of the money being pumped into the system in the name of economic stimulus is inflation — or even hyper-inflation. Inflation can affect your personal finances in a very real way as costs rise and 
investment returns are eroded. With all of the cash being injected into the money supply, the value of our fiat currency becomes diluted, leading to inflation. Federal Reserve Chairman Ben Bernanke, however, is expressing confidence that inflation can be controlled.
In an op-ed piece today that appeared in the Wall Street Journal, as well as in testimony before Congress, Bernanke said that the Fed has the tools it needs to combat inflation and provide a “smooth” exit strategy from economic stimulus efforts. CNN Money reports Bernanke’s sentiments:
“We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner,” he said.
Chief among these is the Fed’s ability to pay interest on the reserves that banks hold at the Fed, Bernanke said. The interest rate the Fed pays on those reserves sets a floor under short-term rates.
If the Fed raises that rate, it can discourage banks from lending because banks will not want to lend money at rates lower than they can earn from the Fed, he explained.
In addition to raising rates, the Fed can also sell some of the long-term securities it is holding.
Of course, how you feel about this depends on whether you believe Bernanke can actually pull it off. Over time, some amount of inflation is unavoidable in scenarios of economic growth — especially when coupled with a fiat currency that is backed by nothing but promises and a general agreement that the money is “good”. However, the Fed (and other central banks) attempt to keep inflation to a an acceptable level so that it does not become an undue burden on the citizens of a country.
Do you think Bernanke’s exit strategy will work? Will we be able to avoid a large amount of inflation?
Image source: Wikimedia Commons
It seems as though Ben is doing a pretty good job managing this mess (i.e. the current economic climate). I suppose you can find flaws in most anything you analyze, but for the most part I have faith that he will perform.
The article: Ben “Systemic Risk” Bernanke proves that Bernanke knowingly maintained a strict monetary policy long after he knew of the sub prime problem.
It shows that it was the only cause of the “Depression”.
And that he probably engineered it on purpose!
If you want to sleep tonight, Don’t Read It!
You can read also: Preparing for the Crash, The Age of Turbulence Update: 22/07/09.|
Plea for a New World Economic Order.
I’m not sure that I think Bernanke engineered this on purpose. At any rate, I think he has done a reasonable job of trying to get through this mess. However, I don’t know how much control he (or any of our other leaders) actually has — or even should have — over the outcome.
Bernanke is the same expert who only last year told Congress wonderful fairytales about housing, the markets, and the economy just as the bubble was beginning its implosion.
Apply the controls available, without inventing new ones, and refrain from creating a Nation dependent on its government (through politicized cronyism) for financial success. Prosperity has no address on that road.
http://pacificgatepost.blogspot.com/2009/07/bernanke-and-super-fed-say-its-over.html
Make changes at the top and change the structure over money’s controls.
Economists are like weathermen making long term forecasts…. every now and then they come close. Bernanke doesn’t get any points for missing the signs of te impending crisis, but does get a few points for helping avoid financial Armageddon.
However, he is in a very tough place now. He has to keep interest rates low to help real estate prices appreciate and the banks earn their way out of problems. Working against him is a Congress and President who in the past six months have run up a higher deficit than anyone in US history with much more deficit spending planned, and need inflation to help erode the costs of their excesses.
In short, I think inflation is already baked into the equation, and Bernanke will be slow to raise interest rates to combat it.
You make an excellent point about why many people do not trust him when he says things are looking better…