Bernanke's Solutions Are the Problem - Mark Thornton - Mises Daily

Bernanke's Solutions Are the Problem - Mark Thornton - Mises Daily: "Historically, deflation was a common feature of the American economy, particularly before the establishment of the Federal Reserve. The one time that there was significant deflation and economic decline was the Great Depression.

Two economists published a study in the American Economic Review in 2004 that examined the association of deflation with depression. They looked at 17 countries and over 100 years of data and concluded that 'beyond the Great Depression, the notion that deflation and depression are linked virtually disappears."

"Possibly the worst of Bernanke's statements occurred in 2006, near the zenith of the housing bubble and at a time when all the exotic mortgage manipulations were in their 'prime.' This was the era of the subprime mortgage, the interest-only mortgage, the no-documentation loan, and the heyday of mortgage-backed securities. At the time, the new Fed chairman admitted the possibility of 'slower growth in house prices,' but confidently declared that if this did happen he would just lower interest rates.

Bernanke stated in 2006 that he believed that the mortgage market was more stable than in the past. He noted in particular that 'our examiners tell us that lending standards are generally sound and are not comparable to the standards that contributed to broad problems in the banking industry two decades ago. In particular, real-estate appraisal practices have improved.'[4] This is the equivalent of the Federal Reserve seal of approval being applied to mortgage lending at the pinnacle of the housing bubble."

"He denied there was a housing bubble in 2005, he denied that housing prices could decrease substantively in 2005 and that it would affect the real economy and employment in 2006, and he tried to calm fears about the subprime-mortgage market. He stated that he expected reasonable growth and strength in the economy in 2007, and that the problem in the subprime market (which had then become apparent) would not impact the overall mortgage market or the market in general.

In mid-2007 he declared the global economy strong and predicted a quick return to normal growth in the United States."

"Austrians were writing about the housing bubble, its cause, and the probable outcomes as early as 2003. Bernanke and others have denied that you can predict bubbles and crises"