Bernanke Defends Expansionary Monetary Policy

Bernanke begins on the eve of the Great Depression and ends on the doorstep of the very real concern being articulated by emerging economies all over the world. Partially due to Bernanke’s influence — and partially due to the effectiveness of his policies — central bankers in struggling developed economies around the globe have pursued accommodating and expansionary monetary policies.

Historically, this pursuit and the unchecked depreciation of currencies yielded a “beggar-thy-neighbor” global economy, where central banks attempted to spur domestic growth at the expense of international trade partners. However, as Bernanke argues, when expansionary monetary policy is pursued by developed economies in a more competent way than perhaps it was in the 1930s, the system shifts from a destructive negative- or zero-sum game to a positive-sum game.

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Bernanke highlights the awkward wholesale abandonment of the gold standard in the 1930s for effectively setting false precedent. “Although it is true that leaving the gold standard and the resulting currency depreciation conferred a temporary competitive advantage in some cases, modern research shows that the primary benefit of leaving gold was that it freed countries to use appropriately expansionary monetary policies,” he said in the speech…