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Dishonesty and Candor in Monetary Policy

August 10, 2013 in Economics

By Hunter Lewis

In the July 26, 2013 edition of the Bank Credit Analyst,  editor Jim Grant notes that when Ben Bernanke was beginning the second round of “quantitative easing,”  he described it in February 2011 Congressional testimony as equivalent to an interest rate cut. In recent Congressional testimony explaining what might be ( or might not be)   a forthcoming “taper” in ” quantitative easing,” he suggested that it would not be equivalent to a rate hike.

This blatant double talk just further compounds the basic dishonesty of the underlying  term “quantitative easing”. It is of course intended to disguise the truth which is that the Fed is creating money. Another favorite circumlocution, favored by nearly all mainstream journalists, is “bond buying.” Nobody ever mentions that the Fed is “bond buying” with newly created money, which is the relevant point.

The origin of today’s monetary policy of course lies in Keynesian economics, and Keynes was quite explicit that monetary authorities should intentionally use deception as a primary tool. He spoke of the need to gull workers into thinking that wages were going up even if net of inflation they were going down. At least he had a sense of humor about it, calling a central bank a “green cheese factory” that would persuade the public to accept ” green cheese” ( newly created money)  as the real thing.

Keynes’s disciple  Bernanke is lacking in both honesty and wit, although he earnestly talks about the need  for more openness in monetary policy, and even gives press conferences. There is alas a logical inconsistency inherent in the idea of lying more openly. It is similar to the conundrum that Gorbachev faced when he tried to reconcile classical liberal values with Soviet communism.

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