An Open Letter to Ben Bernanke

Dear Ben,

You seem to have forgotten what you were appointed to do, and instead, view yourself as the right arm of fiscal policy. If you wish to be a politician, run for office. If you wish to remain a central banker, act like one.

Your mandate is to protect the value of the currency and to ensure inflation remains manageable. It is not to create jobs by attempting to manipulate long term interest rates by printing money. It won’t work. When interest rates are high and inflation and growth are falling, you have some bullets. When interest rates are low and growth and inflation are rising, you have some bullets. Your gun is empty, hombre.

Clearly, you have spent too much time studying a depression that has little relevance to the modern world. High tariffs, closed borders for capital, and insular economies characterized the 30’s. Today, we have a global economy where cross border flows are instantaneous and there are very few barriers to the trade of goods. Today’s slow growth and high unemployment rate has nothing to do with interest rates. When Walmart can borrow for three years at 75 basis points, it should be evident that lower rates aren’t going to have an effect. Companies are not creating jobs despite the abundance of capital that you keep printing. Banks aren’t lending. Why? Because you are giving them risk free profits by lending them money for free and borrowing it back for a couple hundred basis points. Easy game … for them. Raise the Fed Funds rate and see how quickly banks will start lending again.

Please do not cite any further comparisons to Japan’s deflation. The US has very little in common with Japan either economically or culturally. They save, rather than consume, export rather than import, and continually run a considerable current account surplus that acts to strengthen the yen. If you want to learn how to manage our monetary policy, you would do better to compare us to the UK, the poster child for a declining economic superpower displaced by far larger countries in area and population with a hunger and manpower for manufacturing growth. What have they struggled with since America passed them? A continually weakening currency over the long term, and perennially stubborn high interest rates and inflation.

So your bright idea is to quantitatively ease … again. It will have no effect on job growth or wage inflation. That will remain stagnant until the current structural problems sort themselves out, which they will over time. What it will do is drive down the value of the dollar and seriously inflate commodity prices. You should be incredibly alarmed by the current prices of food, energy, and metals. I don’t know about you buy my biggest bills each month are for energy and food. And since wages aren’t going up, I am having a hard time keeping up with those bills. You are crushing the American worker like a python and you had better stop before we can no longer breathe.

Mike Castagna