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Home Publications Blogs Beat the Press Bringing Us to Edge of a Second Great Depression Might Have Hurt the Standing of Central Bankers Also

Bringing Us to Edge of a Second Great Depression Might Have Hurt the Standing of Central Bankers Also

Monday, 07 February 2011 05:36

The NYT had an article warning that the reputation of Mervyn King, the head of the Bank of England, is being damaged by the increase in inflation there. It says that the status of other central bankers are suffering for the same reason.

While the modest increase in the inflation rate in many countries may have some negative impact on the standing of central bankers, their failure to stem the housing bubbles that brought on the worst downturn since the Great Depression would be a more obvious explanation for their loss of status. According to the claims of many, including central bankers like Federal Reserve Board Chairman Ben Bernanke, their mismanagement actually brought many economies to the edge of a second Great Depression. While this claim is not true, it is widely believed. Most people would consider a second Great Depression to be a considerably more serious issue than 3.5 percent inflation. 

Comments (6)Add Comment
written by izzatzo, February 07, 2011 7:56
This is big commie lie. Any economist knows that central bankers rescued the USA from a second Great Depression rather than bringing it to the brink of one by ignoring the housing bubble.

The only reason central bankers are getting blamed for inflation is due to a liberal media, which intentionally sensationalizes cost-push stagflation and exogenous price shock from imported commodities as ordinary demand-pull inflation caused by reckless fiscal deficits and excess money supply.

History will reveal that central bankers deserve the same place in history as Boy Monarch Bush and Known Unknown Rumsfeld for saving the USA from a far worse fate.
a minister, a rabbi, and a banker...
written by frankenduf, February 07, 2011 8:29
get wit da times- the banker is now the default for most disparaged social position (ethically speaking)- polish off all those old lawyer jokes and insert banker instead- not a bad fit...
written by dunkelblau, February 07, 2011 9:03
Is preventing housing bubbles part of the mission statement for central bankers? I can see how they should be responsible for managing money supply, but controlling how it's used seems to me to be a rather tall order.
Mission Of Central Bankers.
written by Jeff Z, February 07, 2011 9:25

In response to your question, yes. This is directly from the the Federal Reserve Act of 1913, and amended periodically since.

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

[12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).] Accessed from http://www.federalreserve.gov/...tion2a.htm

While there is some wiggle room here, I contend that letting a stock or housing bubble grow to epic proportions is not consistent with promoting "effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

In other words, it is part of their mission.
written by Ron Alley, February 07, 2011 10:09
The author of the piece reminds me of some Vikings fans here in Minnesota. They were pleased with the outcome of the Superbowl. In their view Green Bay finally achieved parity with the Vikings. You see, it is 4 = 4. The Viking have four appearances in the Superbowl and the Packers finally have four victories in the Superbowl.
written by PeakVT, February 07, 2011 12:48
The price stability part is the part the Fed ignored during the stock and the housing (or credit) bubbles. Both types of assets were increasing at unsustainable rates - and that was pretty damn clear at the time. But because asset prices are viewed differently than, say, egg prices, they were allowed to inflate.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.