What Did Ben Bernanke Say? - Part Deux

Dr. Ben S. Bernanke (Image: FRS/Wikipedia)

Dr. Ben S. Bernanke, appointed byPresident George W. Bush to the Chair of the Federal Reserve System, spoke in Jackson Hole, Wyoming on Friday, August 26, 2011.

Dr. Bernanke studied the Great Depression extensively (Essays on the Great Depression). Among other insights, he found that the countries recovering most rapidly (Britain, Germany) were those that unlinked their currencies from the gold standard. Those that adhered to the gold standard (France, United States) didn't recover until they unlinked. Today, economists generally acknowledge that economist John Maynard Keynes got it right in urging soft money(abandoning the gold standard) and deficit spending by governments, thereby sustaining the population until economic vigor can return. Today, the world-wide hard money standard is the US dollar. Unlinking from hard money is equivalent to expanding the money supply, that is, QE, "quantitative easing", the current
euphemism. The downside of unlinking is eventual inflation, the loss of currency value. Under Dr. Bernanke's leadership, the Fed has pursued a strategy consistent with preventing inflation by carefully contracting the money supply when economic growth emerges in the future, while expanding the money supply now by purchasing government bonds, to enable current economic growth. This is a new strategy, one not yet attempted intentionally by any central bank.

I suggested to a friend that she read Dr. Bernanke's speech. She did read a bit of it. Then she said "English, please. What did he say?"

(For a glossary of terms used in the speech, click here.)

In this article, with apologies to Dr. Bernanke, I'll try to tweet down the remarks to their most basic messages, plainly stated. (Click here for the original speech.)

So modified, here is the speech:

Some ask: Have the advanced economies stagnated?

I say no. Given our fundamental capacities, growth will return.
The job of policymakers, that is regulators and lawmakers like me, is to, first, help the recovery and, second, promote long-term growth.

The crisis of 2008-9 was the worst since the Great Depression.

After 2009, the global economy grew. Emerging markets led.

U.S. manufacturing is up 15%. The trade deficit is way down. Households save more and borrow less.

The recession is worse, and the recovery weaker than we thought. Output hasn't come back. Unemployment persists. We have long-term problems.

In earlier recessions, production fell and people cut back on purchases. After a while, they bought some things they had put off. Sales increased. Businesses hired. Production increased. Profits improved.

The current recession is bad. It's global. It hit housing hard. It came with a historic financial crisis.

Housing powered previous recoveries, but not this time. Homeowners feel financial stress.

Volatility and risk aversion hit financial markets worried about European government debt and the U.S. budget deficit. Households and businesses lost confidence, which put future growth at risk.

In the FOMC Federal Open Market Committee, we expect a continuing, strengthening, moderate recovery, with long-term inflation under 2 percent, a rate consistent with the Federal Reserve mandate.

The FOMC will hold interest rates near zero through mid-2013.

The FOMC monitors economic conditions. The FOMC will choose from among its many monetary stimulus tools and use the right tool at the right time for a strong recovery with price stability.

Long-term, the crisis and recession won't affect growth potential, if – and I stress if – we take necessary steps. We need good housing policy for stable housing growth in the medium term. Households must save more and borrow less. Businesses must invest and leverage recent productivity gains. Europeans must address effectively the difficult issues they face.

Recovery will take a while. The U.S. economy is big with fundamental market strengths. But the population is aging. The K-12 public schools poorly serve many people. Healthcare costs are highest in the world without commensurately better health outcomes. We must intensify efforts to address these long-term problems.

Policymakers must promote macroeconomic stability, financial stability, effective tax, trade and regulatory policies, development of a skilled workforce, public and private investment, research and adoption of new technologies.

The Fed promotes long-term economic performance by keeping inflation low, by macroeconomic stability and by acting as lender of last resort.

Extraordinarily high unemployment makes a perfect moment in which putting people back to work in the short term reduces hardship, keeps productive resources from lying fallow, avoids long-term loss of skills and avoids long-term detachment of workers from the labor force.

We urgently need recovery of employment.

Most policies for robust long-term growth lie outside central banking.

For economic and financial stability, U.S. government debt must decline. Otherwise, federal government finances will spiral out of control, with severe economic damage.

Fiscal policymakers should urgently seek sustainability. They should plan to reduce future deficits without derailing the current fragile recovery.

Fiscal policymakers must design tax and spending policies that give incentives to work and save. Growth won't fix our fiscal imbalances.

This summer, fiscal negotiations disrupted financial markets and the economy. If this happens again, it will cool world markets for U.S. securities.

The Federal Reserve will pursue high rates of growth and employment in the context of price stability.


  1. Washington Post, Ben S. Bernanke Profile (November 14, 2005, downloaded August 27, 2011) http://www.washingtonpost.com/wp-dyn/content/article/2005/10/24/AR2005102400893.html
  2. Bernanke, B., Essays on the Great Depression (2000, Princeton University Press) Essays on the Great Depression.
  3. Bernanke, B., Speech of Chairman Ben S. Bernanke at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming (August 26, 2011) http://www.federalreserve.gov/newsevents/speech/bernanke20110826a.htm.
  4. Keynes, J. M., The World's Economic Outlook, The Atlantic (May 1932, downloaded August 27, 2011) http://www.theatlantic.com/past/docs/unbound/flashbks/budget/keynesf.htm

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