"In spite of objections that the Fed helped fuel the housing bubble with its loose dollar policies, and the fact that those policies continue to date, the Senate has voted to reconfirm one of the architects of the financial crisis that brought the U.S. economy to its knees." — ALG President Bill Wilson.
January 28th, 2010, Fairfax, VA—Americans for Limited Government (ALG) President Bill Wilson today condemned the U.S. Senate for voting to reconfirm Federal Reserve Chairman Ben Bernanke to a second term.
"In spite of objections that the Fed helped fuel the housing bubble with its loose dollar policies, and the fact that those policies continue to date, the Senate has voted to reconfirm one of the architects of the financial crisis that brought the U.S. economy to its knees," Wilson declared.
Wilson said that the Senate had passed on a "golden opportunity" to hold Bernanke accountable for his role in the financial crisis, "The Senate just voted to reconfirm the man who will not even acknowledge the role his own monetary policies played in causing the crisis."
"Several Senators on the floor did acknowledge the role that indeed was played by the Fed in the crisis, but then voted to reconfirm Bernanke anyway," Wilson added, saying "the odds for higher unemployment and inflation just greatly increased."
Wilson cited Stanford economist John Taylor, who in writing for the Wall Street Journal stated, "the simple observation that the Fed's target for the federal-funds interest rate was well below what the Taylor rule would call for in 2002-2005."
Taylor continued, "By this measure the interest rate was too low for too long, reducing borrowing costs and accelerating the housing boom. The deviation from the Taylor rule, which had characterized good monetary policy during the previous two decades, was the largest since the turbulent 1970s."
The current federal funds rate, the interest rate at which banks borrow from the Fed and lend to each other, is at 0 to .25 percent. Wilson said that the rate "is still way too low."
"Bernanke to date does not share Taylor's views," said Wilson. "He has blamed the crisis on regulatory changes needed at mortgage underwriters Fannie Mae and Freddie Mac. That's only half the story."
"The money to make the home loans in the first place had to come from somewhere. By keeping interest rates so low, the Fed accommodated the housing bubble on the way up," Wilson said.
Wilson also laid blame at Bernanke, and his predecessor, Alan Greenspan's feet for the oil and commodities bubble of 2008, when oil reached nearly $150/barrel and gold topped $1,000/ounce.
The True Money Supply index recorded by the Ludwig Von Mises Institute found that the money supply rose from about $1.787 trillion at the end of 1990 to about $5.268 trillion by the end of 2007, representing a 295 percent increase.
Mortgage debt grew even faster than the money supply. In 1990, outstanding mortgage debt held was $3.805 trillion. By the end of 2007, total mortgage holdings rose to $14.568 trillion, a 383 percent increase.
During the same period, gold rose from $386.20 an ounce to $695.39, a 180 percent increase, oil rose from $23.19 a barrel to $64.20, a 277 percent increase, and the national debt rose from $3.23 trillion to $9 trillion, a 278 percent increase.
"There is little to no hope that Bernanke will do anything to prevent the next bubble from emerging and then popping, because he does not even accept the premise that the Federal Reserve did anything to inflate the housing bubble in the first place. This all places upward pressure on unemployment, increases the likelihood of inflation, and could kill the dollar," Wilson concluded.
Since the financial crisis began in 2007, the Federal Reserve has more than doubled the money supply.