February 09, 2011
Ben Bernanke is great at taking credit for a lot of things that the Fed didn’t actually achieve, while refusing responsibility for the worst results of Fed policy blunders. Here are a few examples of which Fed apologists should take note.
The idea that the short term liquidity facilities were successful is a well cultivated myth. Not only were they not successful, they directly caused the stock market crash in 2008. The Fed withdrew the funds for those programs, which I called alphabet soup programs, from Primary Dealer trading accounts. The dealers could no longer adequately perform their functions as market makers. Without sufficient trading capital, they had no choice but to withdraw their bids. The Fed instituted the Primary Dealer Credit Facility when it recognized its mistake, but it was too late, and was little more than a temporary band-aid over a financial market hemorrhage.
And QE2 is boosting inflation and stock prices, but not employment.
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