Gutless Fed Ignores Deflation

Bernanke should, and does, know better
By Kevin Spak,  Newser Staff
Posted Jul 12, 2010 11:26 AM CDT
Gutless Fed Ignores Deflation
In this Oct. 1, 2009 file photo, Federal Reserve Board Chairman Ben Bernanke testifies on Capitol Hill.   (AP Photo/Evan Vucci, file)

Back in 2002, academic and then-lowly Fed official Ben Bernanke gave a speech explaining that we needn’t worry about falling into a deflation trap like the one that has long gripped Japan, because the Fed had all the tools to stop it. Well, now Bernanke runs the Fed, and inflation is dangerously low. What’s the Fed doing? “Debating whether maybe, possibly, it should consider trying to do something about the situation, one of these days,” gripes Paul Krugman of the New York Times.

Sure, the interest rate can’t get any lower, but in 2002 Bernanke lists lots of other things the Fed can do, like buy government or private-sector debt, or raise its long-run inflation target. One Fed board member has said that doing such things would undermine the Fed’s “institutional credibility.” To which Krugman retorts, “How credible is the Bank of Japan after presiding over 15 years of deflation?” (Read more Paul Krugman stories.)

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