The Senate is presently considering the confirmation of Ben Bernanke to a second term as the Chairman of the Federal Reserve.  For most of the past five years the Fed Chair, through his own statements, has misunderstood the US economy and reacted to its steady decline incorrectly.  Some very smart people give Bernanke credit for preventing a Depression via his decision to inflate the money supply and manipulate mortgage rates.  It remains my contention that this decision, while presently perceived as beneficial, will also eventually be looked upon unfavorably when persistent inflation manifests itself.

Regardless of the eventual impact of “Helicopter Bernanke’s” monetary policy, the Fed Chair has given the Senate all the ammunition it needs to reject his confirmation.  With his extensive experience, supposed academic expertise and the resources of the Federal Reserve at his disposal, Ben Bernanke succeeded in serially misinterpreting the US economy, failed to grasp the forces hobbling it and could not envision the inevitable collateral damage of those trends.    

Below I include the transcript from and the link to a video interview of Ben Bernanke in July 2005.  I submit that the content of his remarks are singularly sufficient to reject Mr. Bernanke as unqualified to serve as the Chairman of the Federal Reserve.

I have always been interested in the timing of these comments as they coincided with my initial public statements that the Housing Bubble would collapse and prices would fall by at least 30% nationally.  I reached my conclusions based on an understanding of the economic forces which had propelled housing prices to unsustainable valuations over the previous decade.  Home values had been propelled by the mandated availability of subprime mortgages, the ever-increasing use of leverage, momentum driven speculation and the proliferation of affordable mortgage products.  Rapidly rising prices created leveraged equity gains which materially distorted consumption, savings and investment decisions. 

While it is admittedly difficult to predict the timing of a confidence or credit bubble, all necessary information was available in 2005 to recognize that the Housing Bubble had exhausted its fuel supply and would collapse under its own weight.  After 10 years of sky-rocketing homeownership rates, there were not enough buyers left to keep the Ponzi Scheme afloat.  Leverage ratios could no longer expand as increasingly transactions involved negative equity.  Valuations had risen to the point where speculators, using maximum leverage and affordable mortgage products, could no longer service the investments defaulting shortly after purchase.  The specter of ARM resets, which required ever-increasing home prices and the ability of owners to monetize paper equity gains or refinance to stave of default, loomed menacingly.  Inventories of newly constructed homes, which operate at the margin of the housing market, were beginning to accumulate.

An individual qualified to serve as Chairman of the Federal Reserve should have been able to grasp these economic concepts which many hedge funds, marginalized crackpots and Goldman Sachs understood to be reality.  Ben Bernanke was and continues to be largely lost within an ongoing economic Depression which is partly of his own making. 

This is a link to a compilation of Ben Bernanke video interviews and testimony which effectively demonstrates his lack of understanding and dismal qualifications. 

The following transcript is an excerpt from a CNBC interview with Ben Bernanke in July 2005.  It may be found 49 seconds into the attached video link above.


Moderator:  "We have so many economists coming on our air that are saying this is a bubble, it’s going to burst, it’s going to be a real issue for the economy, some say it could even cause a recession at some point.  What is the worst case scenario if in fact we were to see (housing) prices come down substantially across the country?"

Ben Bernanke:  "Well I guess I don’t buy your premise.  It’s a pretty unlikely possibility.  We’ve never had a decline in house prices on a nationwide basis.  So what I think is more likely is that house prices will slow, maybe stabilize.  Might slow consumption spending a bit.  I don’t think it’s going to drive the economy too far from its full employment path though.  I am hopeful that, confident in fact, that the bank regulators will play close attention to the kinds of loans that are being made, making sure that underwriting is done right.  But I do think that this is mostly a localized problem and not something that is going to affect the national economy."