What fears, Ben Bernanke

The Great Depression of 1929-1933 in the U.S. was caused by the incorrect policy of the Fed. More specifically, its inability to respond to the sharp decline in money supply due to large-scale bankruptcies in the financial system and reduce the amount of loans and business people. This has led to many years of deflation, unemployment and economic decline. That was the conclusion of American economist Milton Friedman and Anna Schwartz, who drew attention to the monetary nature of the Great Depression, published in 1963 and which later became the "bible" of monetarism book A Monetary History of the United States, 1867-1960. The young scientist Ben Bernanke in mid-1990 confirmed the findings of Friedman and Schwartz. Investigating the role of the gold standard in preddepressionnoy economy, it is shown that the sooner the country out of the gold standard and get an opportunity to increase the money supply, the faster they came out of depression *. Bernanke's work on this subject have become classics in Western universities, and he became regarded as one of the best connoisseurs of the greatest economic trauma the U.S., and around the world in the twentieth century. And deservedly so. Oath Bernanke. Already a member of the Federal Reserve in 2002 in a speech marking the 90th anniversary of Friedman, Bernanke said: "As a representative of the Fed, I want to say to Milton and Anna: regarding the Great Depression, you're right - we made it her. We are very sorry about this. But thanks to you we will never repeat it "**. In just six years, fate gave him a chance to use his extensive theoretical knowledge into practice. After the collapse of investment bank Lehman Brothers in autumn 2008, the U.S., and with them the whole world are faced with an unprecedented in the entire postwar history of the crisis. Ben Bernanke's reaction to the sweeping financial system and economy stupor - an acute crisis the interbank credit market, a surge in defaults on debt elimination in practice of banks lending that started deflation - was entirely in the spirit of his promises. Once all the available methods of mitigation of monetary policy have been exhausted (the Fed target rate was reduced to virtually zero in December 2008), Ben Bernanke, had to seek out innovative ways to combat the looming recession. It was necessary to prevent a reduction in money supply and deflation, as occurred during the Great Depression. Monetary levers. In a normally functioning economy the money supply reliably controlled by the central bank, which directly regulates the amount of the monetary base, key interest rates in the economy and the size of mandatory reserves of banks. Under normal circumstances, increase the monetary base leads to a corresponding increase in the money supply. The Fed operates on the open market (open market operations), buying or selling securities, especially short-term US Treasuries, to regulate the level of liquidity in the banking system. Through these operations, carried out targeting the real rate of the Fed's federal funds (almost always differs from the target). The higher the rate, the more income to holders of short-term government bonds yield and, therefore, the above and all other rates in the economy. When buying securities, the Fed issues the money that banks can send to credit - the lower the rate, the cheaper the loan. In turn, borrowers of banks received direct credit for the purchase of goods and services, and manufacturers are once again put the money they received on deposits, contributing to their overall growth in the banking system. Then the cycle repeats. However, banks can not send all deposits to loans, they are limited by the norm of required reserves: some interest remains in the accounts of the central bank. The higher the reserve ratio, the shorter the cycle of potential credit issue banks. The money supply, which is mainly consists of deposits (cash plus deposits, plus some minor tools) is always under the scrutiny of economists: it is from this figure depends on the price level of GDP and many other options. The relationship between money supply and initially infuse liquidity into the system volume is called the money multiplier. In late 2008, the above described system has collapsed. Familiar multiplexing created the Federal Reserve monetary base has fallen off - the banks instead of lending growth sharply reduced its, borrowers also showed no hurried past. As a result, the multiplier was negative. This occurs when, for example, to add to the system $ 10 increase in the money supply responds only $ 5. Thus, the traditional methods of influence on the Fed's money supply - the discount rate and reserve ratio - proved to be inadequate during a severe crisis. The problem with the banking system in harmony with the well-known English proverb: You can drive a horse to a water, but you can't make it drink («You can take a horse to water but you can not make it drink.") Ben Bernanke, in the traditional activities of the Central Bank led the banking system to ideal conditions for lending, but he could not get her to lend, and borrowers - to borrow. Just because the current debt load is already too great to even greater increase. Just do not fall! I had to go to non-traditional, superradikalnye measures. The policy of quantitative easing started in March 2009 and later renewed in November of 2010, technically the Fed was buying mortgage bonds (within the QE1) and long-term government bonds on the open market. The U.S. Central Bank printed for the implementation of these programs, a huge amount of money - the monetary base grew by almost 3-fold. Many believe that the unprecedented issue in the framework of quantitative easing program has led to an excess of money in the markets that began to create inflationary pressures. The reality, however, according to well-known expert on central bank policy by Richard Koo of Nomura, a little different. If and to normalize the volume of money supply, monetary base and credit in the U.S. in August 2008 for 100, despite the fact that before the crisis, all three parameters were in unison, now we have a situation is not a textbook. By 2011, the monetary base has risen to 300, the money supply - to just 115, as predictable lending dropped to 90. Everything that made Ben Bernanke at the expense of its monstrous scale dispersal of money "from a helicopter" - is that money supply growth remained at its pre-crisis trend line, nothing more. Why so? It's simple: no one wants to take new loans, all at the opportunity to repay old ones, and the policy of quantitative easing only neutralizes the negative effect deleveridzha. True, if the Fed did not go on a double QE, the collapse of the money supply would be quite comparable to what happened during the Great Depression. But the story does not have the subjunctive, so thanks to Ben Bernanke hardly wait. Bet on rebalancing. In addition to retaining the usual pre-crisis growth rates of money supply, the Fed chief, according to the same Richard Koo, set himself another goal - to achieve by QE1 and QE2 rising cost of U.S. assets. "Wealth effect" - people who have expensive assets feel wealthier, spend and take in more credit, showing the additional demand - a prerequisite for economic growth. In fact, Bernanke made investors take the path of rebalancing their portfolios. Since November of 2010 to June 2011, the Fed bought long-term government bonds by $ 600 billion, or almost the entire output for that period. Fed purchases mean that the amount of private investors could not raise the volume of their holdings of government bonds during this time. On the other hand, the fact that U.S. borrowers trying to pay off existing debts, and new and did not think, means that investors also do not increase their holdings of private debt. Both of these circumstances have left investors to fairly limited choice - namely, to buy shares and commodities. A third potential option (real estate) is not considered because of the glut in the market - and without a large amount of this stuff on the balance sheets of banks as a result of defaults on mortgage borrowers and bad prospects for growth in value. Such is initiated by the procedure of running QE growth in value of stocks and commodities markets. Is it a bubble? Probably Ben Bernanke hopes that running them through the growth of the wealth effect will lead to a revival in demand and therefore the economy. Then, over time, increase the fundamental value of companies, that is, the bubble is not formed, or it will resolve itself gradually. The logic of this is, but be sure to realism of this scheme should not be - too weak U.S. economy now and in the activation of promoters can only hope. Not a single monetarism. But what will be further Fed policy after the next large-scale emission in the QE2 and waiting for a new round us, QE3? It is not known. In this connection it is worth paying attention to another element of the anti-crisis policies in the United States, namely, not within the competence of Ben Bernanke's fiscal and budgetary policy. Before the Great Recession budget policy was not seen as an effective anti-crisis measures, its instruments were considered remnants keysianstva. Alan Greenspan once said that the fight against recession - only his prerogative, fiscal policy has nothing to do with it. The Great Recession, however, revived the Keynesian approach in the U.S. and almost everywhere else. The sharp rise in government spending would support the baton to demand that fell from the hands of the private sector. Nobel laureate in economics Paul Krugman has written a book on the subject The return of Depression Economics («Return of the Great Depression?"), In which he showed that in periods when demand in the economy falls too much, one monetary policy is not enough - you have to pray and Friedman and Keynes. Feeble growth in the money supply in the U.S. is supported not only by QE, it needs also a second crutch - huge in terms of public expenditure, dovedshie U.S. budget deficit up to 10% of GDP. How do they work in the economy? Very simple: banks lend to the state by buying a bond, the state pays more in pensions, benefits, etc., and part of that money ends up in deposits of the population or wasted and gets on the deposit of goods and services. Soft fiscal policy supports monetary growth and the economy does not slide into deflation and recession. The American economy is now like a person with a disability who is standing on two crutches - expiring in June, and government spending policies QE2, bloated budget deficit. It is necessary to remove at least one of the crutches - and the patient may fall. This is what Ben Bernanke fears: plans to reduce the deficit, is actively discussed now in Congress - is an attempt to remove the fiscal crutch, and can hardly believe that in this situation, the Fed would remove the, monetary. This means that we probably will have to wait QE3, QE4 and so on in the hope that a miracle will happen and the economy could finally grow without any stimulants. In Ben Bernanke, in fact, no choice, he must perform this promise to Milton and Anna.