WSJ Walks Bernanke To The Gang Plank

Wednesday, April 30, 2008

-- UPDATED --
Fed chairman Ben Bernanke may be a bit unfocused at the runnning 2-day FOMC meeting. The Wall Street Journal, for the first 95 years a staunch supporter of every Fed move, walks him to the gang plank. After being equalled to an alcoholic desiring ever more liquidity and given the advice to join Central Bankers Anonymous by an anonymous writer on Monday the Wall Street Journal has stepped up its attack on Tuesday. Fed expert Greg Ip thrusts another knife into Bernanke's direction, writing,
The Federal Reserve's rescue of Bear Stearns Cos. will come to be seen as its "worst policy mistake in a generation," a former top Fed staffer said.
The episode will be seen as comparable to "the great contraction" of the 1930s and "the great inflation" of the 1970s, Vincent Reinhart said Monday at a panel...
Until mid-2007, Mr. Reinhart was director of monetary affairs at the Fed and secretary of its policy-making panel, the most senior position on the Fed's Washington-based staff. His appraisal is one of the harshest yet by a high-profile observer.
The Fed had no comment on the outspoken criticism. Does Bernanke have a revolt on his hands?
The WSJ brought even heavier slaps on Monday. Headlined "The Fed's Bender" and without a byline a scathing writeup of Bernankes (and the Fed's) failures - similar to those warnings found in blogosphere since 4 years - starts like this:
So Federal Reserve officials are whispering to reporters that they will consider a "pause" after another interest-rate cut this week. Perhaps we should be more respectful, but this sounds like the alcoholic who tells his wife he'll quit drinking next weekend, after one more bender. What Chairman Ben Bernanke needs isn't a gradual withdrawal from easy money but membership in Central Bankers Anonymous.
Ben, you are permitted to get a drink after the FOMC meeting and ponder your future career. Once writers think about being more respectful but aren't, they usually have a professional obituary in their drawers or at least their minds.
Will Bernanke Last After the Election?
It appears there will be no place for you around the fireplace in the FOMC meeting hall in the medium term. Not when the WSJ fires one salvo after salvo, ahem paragraph after paragraph. Who would want to wake to such a devastating resume like paragraph #2?
Eight months into the Fed's most recent rate-cutting spree, the evidence is overwhelming that it has been a major policy mistake. Aggressive rate cutting – taking the fed funds rate to 2.25% from 5.25% last September – has had little effect on the banking crisis it was supposed to ease.
It sounds as if somebody is really fed up with Bernanke's dismal record in ending the financial crisis soon entering its tenth month. 
Just in case that Ben Bernanke is still not getting it, the WSJ teaches him more economics 101. According to the WSJ oil could be at $70 a barrel, had Federal Reserve Notes held their purchasing power like the Euro did in the last half year. That may be a simple argument even president George W. Bush might understand.
Here's the next salvo, ahem paragraph:
As the nearby chart shows, since 2003 the dollar price of oil has climbed far more rapidly than has the euro price – 273% in dollars, compared to 146% in euros. Note in particular the oil spike in dollars since the second half of last year. This reflects the European Central Bank's sounder monetary management. And it means that had the dollar merely retained the same purchasing power as the euro, today's price of oil would be below $70 a barrel.
Does somebody want to make sure that Ben looks at the right charts?
OMG, Ben, you are really given the rough treatment in the WSJ these days.
I wonder if there is still time to develop a medical condition before there will be outright calls for Bernanke's resignation.
It appears as the next president will want to start his task of reviving the economy with somebody else at the helm of the Fed.
Readers of this blog may have been prepared for an early departure of Bernanke since October 2005. I may add now that he will become a staple in economic textbooks on the first depression of the new millennium.
What is worst is that all this should have happened to his predecessor Alan Greenspan. Bernanke's memoirs won't sell in the millions, I am willing to bet. It is not entirely his fault.
I remain waiting impatiently for an encore in Wednesday's WSJ. Will there be more policy advice just ahead of the release of the FOMC statement?
UPDATE: Tuesday's WSJ has one more piece of strong advice for Bernanke. WSJ writer John Chapman opines "The Fed Must Strengthen the Dollar" and patronizes Bernanke to come out of the ivory tower and let go of the Lafferty curve because inflation and unemployment have come hand in hand in the past.

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