7th December 2010
The US has been seen as spreading global inflation through an unnecessarily loose monetary policy. Ben Bernanke has previously been robust in his defence of US policy, suggesting that the problem instead lies with artificial currency manipulation, but an unusually nervous performance on CBS's 60 minutes left observers doubting his conviction and with it the outlook for the US economy.
In the interview, Bernanke reiterated his gloomy verdict on the US economy. He said that the recovery may not yet be self-sustaining and deflation remained his biggest concern. He was also clear on the risks posed by continued high unemployment, saying that the number of long-term jobless remained worryingly high. He also said that any inflation risks from quantitative easing have been ‘over-stated'.
His comments did not inspire confidence, neither did his shaky delivery. bear_in_mind's comments on the CBS site were illustrative of the wider reaction saying: "If that interview was meant to build confidence, in my estimation he failed miserably. While I found his rhetoric predictably stale, his overt nervousness and stammering were quite striking. Given (how often) he is in front of the media, such as testifying in front of Congress, it's hard not deduce a whiff of panic in his delivery."
The Daily Telegraph chose to focus on Bernanke's admission that quantitative easing 3 (QE3) remained a possibility:
Many vocally doubted his assurance that inflation remained under control. Mark fowler commented on the Telegraph site: "Vast money creation reduces the value of savings and incomes etc leading to a reduction of economic activity. Much of this cash is used to buy up commodities before they even exist, even if it does not end up in general circulation it leads to the inflation of necessities."
In response to this article on the Wall Street Journal, Peter Marlow writes: "Bernanke 'is "100%" confident he can prevent runaway inflation.' Hahahaha! THIS from the man who 100% missed the greatest global financial crisis in 80 years!? Tomorrow, I will RUN, not walk, to my closest silver dealer and buy as many silver coins as possible. BEWARE America. Ben Bernanke is on a warpath to debase the US dollar; to enrich his bankster masters; and to destroy the nation's middle class. PROTECT yourselves."
This was much the same response as the markets, albeit markets were a little less hysterical. Gold moved up 1.37% to $1,425 per ounce to yet another new high the day after his speech.
Many dispute Bernanke's basic premise that he can solve a debt crisis by creating more debt. He admitted in this speech that the budget deficit needed to be tackled at some point, but said that now was not the time.
Azad Zangana, a European economist with Schroders, says that it is unlikely there will be any fiscal austerity measures until after the next presidential election. That said, he points out that at the municipal level, there has been plenty of tightening: "This has already had an effect on consumer confidence – schools and hospitals have been getting rid of workers."
Zangana believes that the trouble is not the resumption of quantitative easing itself, but that it is being administered through a broken banking system and is therefore not finding its way through to the right places. Bernanke remains determined to sprinkle money wherever possible. His credibility is increasingly on the line.