Ben S. Bernanke

This book consists of four lectures covering the history of the Federal Reserve, the financial crisis that began with the housing bubble, how the Fed in concert with other U.S. and foreign agencies dealt with various aspects of the crisis, and finally the aftermath. These lectures were delivered in March, 2012 at George Washington University. Bernanke's lectures turned out to be more interesting than I expected and were very informative. Recommended for anyone with an interest the Federal Reserve and monetary policy and for those who would like to know how the U.S. economy got to where it is now.… (plus d'informations)

the book in and by itself is structured as a "plain English" book; pity that I read it in Italian- so, you do not know if the mistakes within the book are due to sloppiness by the authors or by the translators/"localizers" (as the Italian version includes many examples about Italy).

one of the issues is that, obviously, the book is an extract from the book by the authors, and therefore it is more than probable than many discrepancies are due to the editing process

overall... useful as a plain English/Italian introduction to the subject, to be immediately confirmed with something more structured… (plus d'informations)

The Federal Reserve and the Financial Crisis
Lectures by Ben S. Bernanke
Princeton University Press
Reviewed by Karl Wolff

President Harry S. Truman had an oft-cited quote about economics, saying, "It's a recession when your neighbor loses his job; it's a depression when you lose yours." Five years after the global economic meltdown, we're still using the term Great Depression. Like victims of a terrorist bombing, we have finally regained consciousness, looked around at the rubble and carnage, and asked, "What happened?" In matters of international terror, the United States is attempting to get that under control. After the 2008 economic meltdown, we asked the same questions, but the field of economics remains mystifying, needlessly obscure, and ultimately boring. Case in point: Fed Chairman Alan Greenspan testifying before the Senate. The Upright Citizens Brigade TV show even made a joke out of it. All kidding aside, the best way to get out of a crisis is to find clear and concise answers. What's the problem? How do we solve it?

In a series of four lectures delivered at George Washington University in March 2012, current Fed Chairman Ben S. Bernanke explained several important issues: what the Fed is, what the Fed does, its history, and its response to the financial crisis. Prior to his heading the Federal Reserve, Chairman Bernanke was an economics professor at New York University and Princeton. He published a volume of academic essays called Essays on the Great Depression.

Here's a simple thought experiment: Explain what the Fed is and what it does in a short paragraph. "Um ... interest rates and stuff? Printing money?" You're half right. Chairman Bernanke explains that the Federal Reserve, created in 1913, operated as a government-backed central bank. Central banks have existed for centuries, acting as "lenders of last resort." Prior to the Federal Reserve System, the United States experienced a chaotic economic situation. President Andrew Jackson fought the banks for reasons more obscure than the causes of the War of 1812. The United States also experienced economic booms and depressions with frequency and ferocity. In 1893, the year of Chicago's Columbian Exposition, 500 banks collapsed. (In 1873 100 banks collapsed, in 1884 around 50, and in 1907 around 80 banks collapsed.) When these panics and collapses occurred, the United States usually depended on the charity of one J.P. Morgan.

The creation of the Federal Reserve wasn't a panacea either. In 1951 it concluded negotiations with the Treasury, agreeing to set interest rates independently to achieve economic stability. (That is the Fed's other function.) Throughout these four lectures Chairman Bernanke explains in down-to-earth language the roles of the Fed and why the housing collapse was far worse than previous bubble's bursting. One troubling aspect, besides size ("Too big to fail"), was complexity. Another interrelated aspect was contagion. In plain English, the complex, occasionally fraudulent, investment practices involved not just the stock market, but banks, investment firms, and overseas institutions. Simply unraveling these mind-bogglingly complex trades that even the bankers didn't fully understand.

Because of the Fed's obscure role in everyday life and its alleged omnipotence, it has become grist for countless conspiracy theories (some virulently anti-Semitic). Chairman Bernanke is the first to confess the Fed's limitations and mistakes in dealing with the financial crisis. One is reminded of the term "intelligence failure," especially prior to 9/11. A practice that bedeviled American counter-terrorist efforts were an alphabet soup of various agencies, various agendas, and various bits of data no one would share. The economic picture is nearly identical and just as fractured. The Fed only represents one aspect of the financial picture. There is also legislative regulation (like the recent Frank-Dodd bill passed into law) and executive oversight (like the Council of Economic Advisers). The challenge remains to institute an agency that can oversee the entire macroeconomic picture, pool data, and wrangle the different personalities at the Fed, Treasury, and so forth. This has not yet been attained, but Bernanke is astute for realizing there is a lack that needs to be filled.

Following each lecture, there are a few pages of Chairman Bernanke fielding questions from students. They read like NPR interviews, which is a good thing, since Chairman Bernanke is adept at explaining complex economic issues to a lay audience.

The value of this book is in its concision (less than 130 pages), and its clarity. One can breeze through this book in a lazy weekend afternoon or buzz through it on a workday commute. Regardless of what one thinks of Chairman Bernanke, the Federal Reserve System, or American capitalism, this book does an eloquent job of informing the reader what really happened to cause the financial crisis. The American people are still arguing over the correct solutions to the problems (note the plural), but before one snipes and snarks at the political opposition, best read up on the topic. This is a good place to start.

Out of 10/8

http://www.cclapcenter.com/2013/07/book_review_the_federal_reserv.html

OR

http://driftlessareareview.com/2013/07/05/cclap-fridays-the-federal-reserve-and-...… (plus d'informations)

Ben Bernanke is, of course, the current chairman of the Federal Reserve Board and a key architect of the government response to the 2008-2009 financial crisis. Before that, however, he was a Princeton University economist and one of the foremost researchers into the causes of the Great Depression of the 1930s. His reputation as an expert on the Great Depression is based largely on these essays, which originally appeared in scholarly journals between 1983 and 1996. Not only do they sum up much of the consensus view on the causes of the Depression, they also help to put into perspective the Fed response to the recent crisis.

This is not a book for the average reader; these essays were written for other scholars, and a good working knowledge of macroeconomics is necessary to follow Bernanke's analysis and arguments. Its message, however, is very important. Serious mistakes in monetary policy, especially by the Federal Reserve, combined with the rigidities of the interwar exchange rate system based on gold, caused a cyclical downturn in 1929 to metastasize into the most serious and prolonged worldwide economic depression in modern history.

Here's how Bernanke himself summarizes the story in his final essay: "For a variety of reasons, including among others [the] desire of the Federal Reserve to curb the U.S. stock market boom, monetary policy in several major countries turned contractionary in the late 1920s – a contraction that was transmitted worldwide by the gold standard.... What was initially a mild deflationary process began to snowball when the banking and currency crises of 1931 instigated an international 'scramble for gold.' Sterilization of gold inflows by surplus countries, substitution of gold for foreign exchange reserves, and runs on commercial banks all led to increases in the gold backing of money and, consequently, to sharp, unintended declines in national money supplies.... Monetary contractions in turn were strongly associated with falling prices, output, and employment. Effective international cooperation could in principle have permitted a simultaneous monetary expansion despite gold-standard constraints, but disputes over reparations and war debts and the insularity and inexperience of the Federal Reserve, among other factors, prevented this outcome. As a result, individual countries were able to escape the deflationary vortex only by unilaterally abandoning the gold standard and reestablishing domestic monetary stability, a process that dragged on in a halting and uncoordinated manner until France and the other Gold Bloc countries finally left gold in 1936...." (pp. 276-277)

In other words, the Fed, fearing that the stock market boom of the late 1920s was turning into a dangerous bubble (like the housing market bubble in 2007-2008) took steps to deflate it by shrinking the US money supply. It worked, and the stock market crashed, casting the United States into recession. But because of the rigid rules of the gold standard (and the Fed's misunderstanding of the situation), this monetary contraction spread from the United States to other countries, which also fell into recession. Deflation set in: industrial production, employment, and prices began to spiral down. Gold flowed to the United States, which should have caused the money supply to expand and counter deflation, but the Fed mistakenly prevented that from happening (sterilization).

In fact, the Fed's policies shrunk the money supply even further, worsening the deflation problem at home and abroad. By 1931, banks in Europe and the United States began to fail at an alarming rate, but poor policy decisions and rigid adherence to the gold standard only continued the downward spiral. By early 1933, thousands of banks had failed, millions of people were unemployed (the US unemployment rate hit 25% that year), and billions in wealth had been destroyed. The United States' economic collapse was halted only when the new Roosevelt administration abandoned the gold standard in 1933 and began stabilizing the financial system, but recovery took years and the process wasn't completed until 1941.

There are elements of this story that are still unclear - why, for example, did production and employment remain so deeply depressed for years after the financial system had been stablized? But the lessons of the Great Contraction (as Milton Friedman and Anna Schwartz called it in 1963) are reasonably clear. When faced with a severe economic shock, the Fed's responsibility is to use monetary policy to prevent a bad situation from getting worse. That means, among other things, using open market operations to expand the money supply, to offset the contractionary effects of recession and prevent the collapse of the financial system. That is precisely what the Fed failed to do in 1929-1933, but what it did quite successfully in 2008-2011. And it's one of the principal reasons that we didn't plunge into a Second Great Depression.… (plus d'informations)