Nowhere is this more true than in government – which means we have to
watch it closely. Unfortunately preconceived notions can make us
impervious to events right in front of us and lead us to colossal
misperceptions.
Take the Federal Reserve System. (All together now: Please!) Since the central bank controls the money supply, advocates of free markets and market-based money are understandably wary of its power to generate inflation. It’s inflated in the past and has the capacity to do so in the future. So attention naturally goes in that direction.
The problem is that while we’re watching for inflation, we might be missing the Fed’s real mischief elsewhere. In stage magic this is called misdirection.
Jeffrey Rogers Hummel, a macroeconomist at San Jose State University and a Freeman contributor (not to mention an old friend), says that’s exactly what has been happening. While inflation hawks have been busy looking for any sign, or even any word, of monetary expansion, Hummel writes, “[Fed chairman Ben] Bernanke has so expanded the Fed’s discretionary actions beyond merely controlling the money stock that it has become a gigantic, financial central planner.”
In other words, “Bernanke’s targeted and sterilized bailouts have altered the fundamental nature of the Federal Reserve…. [T]he Fed that emerged from the [housing and financial] crisis is no longer the same as the Fed before the crisis…. Most economists appear not to appreciate fully how drastic the changes are that Bernanke has wrought.”
Read more: http://www.thefreemanonline.org/columns/tgif/the-new-fed/
Take the Federal Reserve System. (All together now: Please!) Since the central bank controls the money supply, advocates of free markets and market-based money are understandably wary of its power to generate inflation. It’s inflated in the past and has the capacity to do so in the future. So attention naturally goes in that direction.
The problem is that while we’re watching for inflation, we might be missing the Fed’s real mischief elsewhere. In stage magic this is called misdirection.
Jeffrey Rogers Hummel, a macroeconomist at San Jose State University and a Freeman contributor (not to mention an old friend), says that’s exactly what has been happening. While inflation hawks have been busy looking for any sign, or even any word, of monetary expansion, Hummel writes, “[Fed chairman Ben] Bernanke has so expanded the Fed’s discretionary actions beyond merely controlling the money stock that it has become a gigantic, financial central planner.”
In other words, “Bernanke’s targeted and sterilized bailouts have altered the fundamental nature of the Federal Reserve…. [T]he Fed that emerged from the [housing and financial] crisis is no longer the same as the Fed before the crisis…. Most economists appear not to appreciate fully how drastic the changes are that Bernanke has wrought.”
Read more: http://www.thefreemanonline.org/columns/tgif/the-new-fed/
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