As is well known now, Texas Governor Rick Perry unleashed some choice words about Fed Chairman Bernanke in Iowa on Monday. Not surprisingly, Perry’s comments inflamed the commentariat, with a mix of positive and negative reviews.
Karl Rove, ever eager to defend a former president whose administration he advised not so well, observed that Perry’s utterances weren’t “presidential”. Whatever the validity of Rove’s comment, it would be interesting to get his take on how “smart” it was for George W. Bush to appoint Bernanke in the first place.
The Wall Street Journal’s editorial page, though supportive of Perry, suggested that the governor “was wrong to use the words ‘almost treacherous, treasonous’ in referring to Mr. Bernanke.” According to their editorialists, “those words ought to be reserved for specific acts of betrayal against America, and the Fed chief is certainly a patriot.” That’s fine as it goes, but then if it’s agreed that Bernanke’s policies have had a role in the dollar’s evisceration since his arrival as Fed Chair, and if it’s also agreed that the dollars Americans accept for their labors speak to an implicit trust in the issuer, it’s arguable that Bernanke’s acts constitute a certain betrayal, and as such, are treasonous.
Moving to the left, Binyamin Appelbaum of the New York Times referred to Perry’s outburst as “horrifying”, while the vastly overrated Nouriel Roubini, still clinging to his 15 minutes after an economy call that he got right for all the wrong reasons, viewed what Perry said as “criminal”. Both doubtless buy into the absurd notion that Perry’s words were more than rhetoric, and they simply need to grow up.
John Podhoretz perhaps penned the biggest howler in suggesting that “independent voters” are “going to come away with the vague impression that he [Perry] might be for lynching someone, and people generally don’t like that sort of thing.” Perhaps I’m naïve, but I want to meet the voters dim enough to come away with that impression, then petition Congress to rescind their voting privileges.
Back to reality, Perry’s words hit a nerve because he spoke honestly about what many voters feel. As Keynes long ago noted, currency devaluation is the best way to inflame society, and voters are mad. In doing what he did, Perry summoned a bit of rhetorical flourish, though it was nothing more than that. People need to relax.
Of course some on the right, correctly confused by all the fuss owing to their similarly negative views about easily the worst Fed Chairman in history, pointed out that Vice President Biden did worse in referring to the Tea Partiers as terrorists. It says here the right needed to relax there a bit too, but since Biden uttered the word, a simple comparison springs to mind.
Osama bin Laden was a terrorist by all accounts, and by many accounts the terrorist act that he helped orchestrate on 9/11 inflicted great economic damage on the United States beyond the generalized horrors of that day. But were bin Laden’s actions worse for the economy than those of Ben Bernanke? Let’s see.
On 9/11 the price of gold (NYSE:GLD) was trading around $286/ounce, a gallon of gasoline (according to the Energy Information Administration) went for $1.53, and the U.S. unemployment rate stood at 5%. One year later, with the economy having absorbed the bin Laden body blow, gold traded at $317/ounce, a gallon of gas sold for $1.35, and unemployment had risen to 5.7%.
So while gas actually ticked downward somewhat, it’s fair to presume that the risk aversion wrought by Osama’s act had some kind of negative impact on the dollar such that gold was trading higher. And with levels of employment a function of investor willingness to commit capital, it’s not unrealistic to suggest that fear of another terrorist attack informed the decisions of investors in such a way that they pulled back on the way to rising unemployment. Bin Laden certainly did some damage, though it would be impossible to quantify how much.
Moving to Bernanke, while no sane human being would suggest he’s a terrorist, many are understandably frustrated with the job he’s done at the Fed. But rather than a terrorist, Bernanke is merely hopeless at his job for his embrace of nearly every discredited economic fallacy under the sun.
Bernanke’s Fed is charged with keeping inflation low alongside unemployment. Though it’s a terrible economic shame that the Fed has anything to do with either, that’s what our central bank is charged with.
Looking at the numbers, Bernanke took over in February of 2006. At the time an ounce of gold was selling for $569/ounce (notably, gold spiked from $480 upon his nomination; this jump presumably the markets pricing in what was ahead), a gallon of gas retailed for $2.24, and unemployment had fallen back down to 4.8%. Not great numbers, particularly those of gas and gold, but somewhat calm.
Fast forward 5 ½ years later, however, and the situation is ugly. Gold, the most devaluation/inflation sensitive of all market indicators has more than tripled to over $1,800/ounce, the price of a gallon of gasoline has jumped to $3.58, and the rate of U.S. unemployment has nearly doubled to 9.1%. In the real world our blundering Fed Chairman would be gone by now, but in a Washington largely oblivious to market discipline, Bernanke has failed upward; graduating to “the world’s foremost Great Depression scholar” despite economic instincts that suggest he would have felt right at home in the Hoover and FDR administrations that gave us the 1930s.
Back to Perry, though his use of “treasonous” as it applies to Bernanke was probably unscripted, and uttered without much thought given to its meaning, it doesn’t seem wrong when applied to our central bank head. Bernanke hasn’t committed willful treason, not all of our malaise is his doing, but his actions and their impact on the dollar surely constitute a betrayal; the impact certainly more economically painful than what Osama was able to inflict on us nearly 10 years ago.