Would Bernanke prove to be the ‘Man Friday’?
Is the Federal Reserve bred well to handle the emerging ‘Black Friday’?
Four years ago, Ben Bernanke 
co-authored a technical paper that could have been titled “Things the Federal Reserve Might Try if It’s Desperate” – although that may not have been obvious from its actual title, “Monetary Policy Alternatives at the Zero Bound: An Empirical Investigation.” Today, the Fed is indeed desperate, and Bernanke, as its Chairman, is putting some of the paper’s suggestions into effect. Unfortunately, however, Bernanke Fed’s actions– probably won’t be enough to halt the economy’s downward spiral. And if I’m right about that, there’s another implication: The ugly economics of the financial crisis will soon create some ugly politics, too. The Fed’s economic power rests on the fact that it’s the only institution with the right to add to the “monetary base”: pieces of green paper bearing portraits of dead presidents, plus deposits that private banks hold at the Fed. When the Fed is worried about the state of the economy, it basically responds by printing more of that green paper, and using it to buy bonds from banks. The banks then use the green paper to make more loans, which causes businesses and households to spend more, and the economy expands. This process can be almost magical in its effects: A committee in Washington gives some technical instructions to a trading desk in New York, and just like that, the economy creates millions of jobs. But sometimes the magic doesn’t work. And this is one of those times.
co-authored a technical paper that could have been titled “Things the Federal Reserve Might Try if It’s Desperate” – although that may not have been obvious from its actual title, “Monetary Policy Alternatives at the Zero Bound: An Empirical Investigation.” Today, the Fed is indeed desperate, and Bernanke, as its Chairman, is putting some of the paper’s suggestions into effect. Unfortunately, however, Bernanke Fed’s actions– probably won’t be enough to halt the economy’s downward spiral. And if I’m right about that, there’s another implication: The ugly economics of the financial crisis will soon create some ugly politics, too. The Fed’s economic power rests on the fact that it’s the only institution with the right to add to the “monetary base”: pieces of green paper bearing portraits of dead presidents, plus deposits that private banks hold at the Fed. When the Fed is worried about the state of the economy, it basically responds by printing more of that green paper, and using it to buy bonds from banks. The banks then use the green paper to make more loans, which causes businesses and households to spend more, and the economy expands. This process can be almost magical in its effects: A committee in Washington gives some technical instructions to a trading desk in New York, and just like that, the economy creates millions of jobs. But sometimes the magic doesn’t work. And this is one of those times.There’s nothing Bernanke can or should do to prevent people who bet on ever-rising house prices from losing money. But the Fed is trying to contain the damage from the collapse of the housing bubble, keeping it from causing a deep recession or wrecking financial markets that had nothing to do with housing.Continue
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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Labels: ARINDAM CHAUDHURI, IIPM INTERNATIONAL, IPM, MANAGEMENT CORSES ONE YEAR AND FULL TIME, TOP MBA AND BBA INSTITUTE IN INDIA
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