Ben Bernanke: "Let Them Eat Cake!"
[Photo of Marie Antoinette from Wikipedia]
According to Robin Harding's article in today's Financial Times, our Federal Reserve Chairman is convinced the Fed's QE2 program has nothing to do with worldwide rising food prices. In response to a question on the subject, Bernanke says:
"I think it's entirely unfair to attribute excess demand pressures in emerging markets to US monetary policy, because emerging markets have all the tools they need to address excess demand in those countries...."
I will not harp on the fact that I don't agree with Bernanke. First of all, no one really cares what I think; and secondly, I don't have the scientific ammunition to prove him wrong, even though evidence to the contrary is clear to me.
What I can point out, however, is his twisted sense of noblesse oblige. To make the above-quoted statement, he must have made one of the following assumptions:
A. An increase in the issuance of U.S. dollars without a corresponding increase in U.S. GDP has no effect on foreign nations; or
B. An increase in the issuance of U.S. dollars without a corresponding increase in U.S. GDP may have an effect on foreign nations, but they can control that effect by tinkering with their own monetary unit, which tinkering is effective and has no deleterious effect; or
C. An increase in the issuance of U.S. dollars without a corresponding increase in U.S. GDP may have an effect on foreign nations, but who cares.
Bernanke may not have the gall to choose C, as did Nixon's Treasury Secretary, John Connally. Faced with a similar question, Connally is reported to have said: "[T]the dollar is our currency but your problem...." No, this would sound too flippant, too frank, and would not correspond to Bernanke's more academic, more convoluted style.
So let's assume Bernanke has chosen B above.
In support of this assumption, Bernanke might cite the example of China. China has simply absorbed any excess dollars by investing them in U.S. treasury bonds. (Don't look now, but China clearly has no other choice. If it stops squirreling away its excess foreign reserves, the dollar will tank even faster and take the value of the reserves with it. And by the way, if you look hard enough you'll notice that China is slowly diversifying away from U.S. dollars.)
Bernanke doesn't seem to care that other countries may not have China's leeway. He explains, "They can, for example, use monetary policy of their own. They can adjust their exchange rates, which is something they've been reluctant to do in some cases."
But ... isn't that illegal currency manipulation? In fact--isn't that what we're doing??
Oh well. I guess two wrongs make a right.
If you ask me, Ben and Marie Antoinette have something in common. It's called Hubris.