What Will Bernanke Do?

Hopefully, nothing!

We know that Ben Bernanke pledged to stop quantitative easing (QE) at the end of March. We have now passed that point, and it remains to be seen whether he keeps his promise. In Obama’s “Ides-of-March” Moment is Near, the likelihood of that happening was judged as not very high.

Ambrose Evans-Pritchard opines: “Bond vigilantes ask who will step into the Fed’s shoes to soak up the flood of debt from Washington, whether from the Obama Treasury or from Fannie Mae and Freddie Mac – the mortgage giants on death row.”

The recent spike in interest rates, if sustained or continued, threatens to shut down the housing market.  Perhaps that would be a reasonable thing, given that we have too many houses, at least at the prices that are currently being asked for them. But that would cut off the probability of an economic recovery.

The problems we create when we attempt to manage an economy are never-ending. Economies are fine by themselves, thank you. It is only when interventions take place that distortions are created. These distortions prompt additional interventions in an attempt to mitigate or solve the problems caused by the prior intervention.

To think that Ben Bernanke or any other human being is capable of managing the US economy is idiotic. Frederich Hayek stated this very problem quite nicely:

To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.

Hayek’s advice was ignored. Now we have layer upon layer of interventions that have hampered the productive economy. Each new intervention requires greater input and force. Furthermore, over time, the economics profession, including economic journalists, have been lulled into believing that all of this is necessary.

Evans-Pritchard, a journalist with whom I generally agree, has fallen for this siren-song of central planning in the link above. More intervention will be undertaken. Yet a careful read of the article indicates it is always in reaction to a previous intervention that failed. What will Bernanke be thinking a couple of years from now when additional intervention is necessary to correct the damage he is about to do?

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