Analysis: Fed Chairman Bernanke Lied on 60 Minutes

Analysis: Fed Chairman Bernanke Lied on 60 Minutes
December 13, 2010

There is no other way to put this: Federal Reserve Chairman Ben Bernanke outright lied on 60 Minutes on December 5.

At one point during the interview with Scott Pelley, Bernanke said:

“One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.”

The one person in the world that should know what the money supply is doing is the Federal Reserve chairman. It is completely outrageous for him to say the currency isn't changing. As every economist knows, there are many components to the money supply that go way beyond currency, especially checking accounts. There is no economist I know who would use "currency" to mean the money supply.

Misleading Statement on Money
That said, let’s start with Bernanke’s very misleading mention of currency. Over the past three months currency had grown by an annualized rate of 5.6 percent. In all the dictionaries I have looked at, 5.6 percent growth means 5.6 percent growth, and not that there is no change.

But more important, the M1 money supply measure, which includes checking accounts, had grown at an annualized rate over the last 13 weeks of 14.8 percent (beginning Aug. 23). This is huge. In the previous six months ending Aug. 31, M1 grew at only 3.6 percent.

In other words, the growth in currency and checking accounts, known as M1, grew over 13 weeks at nearly four times the rate of the prior six months.
 
In addition, few economists use M1 as a measure of money supply. I prefer the M2 measure, as do most economists. In the 13 weeks beginning Aug 23, the M2 money supply measure grew 6.4 percent. In the six months ending Aug 31, M2 grew by only 2.5 percent. In other words, M2 money growth increased by a multiple of 2.5 times.

Bernanke simply lied. There is no other explanation. Money supply is skyrocketing, and it is very likely QE2 has only started to have its impact. By the time it’s over, money supply growth (by all measures) will be above 10 percent.

Muddled Interviewer
Another problem with the 60 Minutes interview is that Pelley had no idea how to challenge Bernanke properly. It was a total softball experience that eventually turned into a Dali-like production.

At one point Pelley does this voiceover: “Bernanke wanted to emphasize that these are the Fed's own reserves. It's not tax money. It does not add to the federal deficit.”

The Fed's own reserves?!

The Fed simply prints the money. There were no “reserves” sitting anywhere that Bernanke used. Pelley was way in over his head. The interview was a mockery of 60 Minutes.

Pelley also let Bernanke get away with this doozy: “The other concern I should mention is that inflation is very, very low, which you think is a good thing and normally is a good thing. But we're getting awfully close to the range where prices would actually start falling.”

There was no mention that all sorts of price are climbing and that oil is at a two-year high!

Far-Fetched Forecast
Then, of course, we have the absurdity of Bernanke forecasting unemployment numbers for the next five years. This from a man who didn't see the housing bubble that was right in front of him: “At the rate we're going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of, say, 5 or 6 percent.”

If Bernanke continues printing money the way he is, unemployment will be way down in 12 months, but it will be a manipulated, inflationary recovery. Bernanke is doing nothing but projecting the current rate out five years, without any understanding of the inputs and outputs that cause changes in the unemployment rates. Some economist.

Bottom line: CBS should send the clip over to NBC so that they can use it as a Saturday Night Live segment. Between lies, misleading comments, and idiotic theories about unemployment and how the economy works, that's the only place the interview belongs.

Projecting Overconfidence
Inflation is coming, and it’s coming hard and fast. Between his lies and confusions, Bernanke is going to lull many people into a false calm. Indeed, his most dangerous comment was this: “We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.”

When the price inflation becomes obvious, there is no way Bernanke is going to raise rates enough to stop the inflation. He may even raise them over a three-month period by 500 basis points, but by that point inflation will be at or over 10 percent and  a 500 basis point move to, say, 6 percent, will be too little, too late.

Prepare yourself for a very nasty, inflationary economy.

Robert Wenzel (rw@economicpolicyjournal.com) is editor and publisher of EconomicPolicyJournal.com, where a version of this article first appeared. Used with permission.