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Bernanke: Failure, or Just Delusional?

In his June 7th speech, Fed Chairman Ben Bernanke stated, “the best way for the Federal Reserve to support the fundamental value of the dollar in the medium term is to pursue our dual mandate of maximum employment and price stability, and we will certainly do that.“.

It is instructive to take a look at the actual Federal Reserve goals, as well Bernanke’s results in pursuing those goals.

Goals of Monetary Policy (emphasis added)

“The goals of monetary policy are spelled out in the Federal Reserve Act, which specifies that the Board of Governors and the Federal Open Mar­ket Committee should seek ‘to promote effectively the goals of maxi­mum employment, stable prices, and moderate long-term interest rates’.  Stable prices in the long run are a precondition for maximum sustainable output growth and employment as well as moderate long-term interest rates. When prices are stable and believed likely to remain so, the prices of goods, services, materials, and labor are undistorted by inflation and serve as clearer signals and guides to the efficient allocation of resources and thus contribute to higher standards of living. Moreover, stable prices foster saving and capital formation, because when the risk of erosion of asset values resulting from inflation—and the need to guard against such losses—are minimized, households are encouraged to save more and busi­nesses are encouraged to invest more.” (http://www.federalreserve.gov/pf/pdf/pf_2.pdf)

Let’s look at the results of Bernanke’s economic “fine tuning”(using data from the St. Louis Fed’s database, starting in February, 2006, through April 2011), and see if he has successfully pursued this mandate.

Definition of STABLE (from the Mirriam-Webster dictionary)

a : firmly established : fixed, steadfast <stable opinions>

b : not changing or fluctuating : unvarying <in stable condition>

c : permanent, enduring <stable civilizations>

Stable Prices?

Stable prices are one of the Fed’s primary mandates.  In the table below, take a look at what has happened to the prices of items in a typical U.S. consumer’s budget since Ben took the reins:

Feb ’06 – April ’11

Items in a Typical Budget

% Change

Food and Beverages


Water and sewer and trash collection services


Rent of primary residence




Fuels and Utilities




 Medical Care


Gasoline (all types)




Tuition, other school fees, and childcare




It is easy to play with the weightings of the above prices, and see how individual budgets would be impacted.  Regardless of the method used to look at prices, it is clear that Bernanke has not been successful at maintaining price stability since taking over as Fed Chairman.  Mandate not accomplished.

Maximum or Full Employment

Finding a strict definition of maximum employment is impossible.  Many economist give different estimates, ranging from 2-7%.  The standard Unemployment Rate most often used by the Fed is currently at 9.1%, up 90% since Bernanke started.  The more inclusive (realistic) U6 number stands at 15.8%, up 75% in the same period.  The Civilian Participation Rate has declined 2.87% to 64.2%.  This is the lowest level the U.S. has seen since March, 1984.  The decline amounts to 8,946,844 fewer Americans in the labor force.  Had they not dropped out because of a lack of jobs, the “official” unemployment rate would be significantly higher.  While we can debate the meaning of the term maximum employment, it is clear that the jobs data has deteriorated considerably since Bernanke took the reins at the Fed.  Mandate not accomplished.

Moderate Interest Rates

While not stated in Bernanke’s recent address, the Fed’s website also posts “moderate interest rates” as a stated goal.  While we cannot definitively say what constitutes “moderate”, we do know that both short and long-term interest rates are near all time lows.  It is safe to assume that near record low rates are not “moderate”.  Further, when  interest rates are artificially held below the rate of economic growth,” financial repression” is occurring.  Many bright folks have commented on how the zero interest rate policy (ZIRP) is destructive to savers and misallocates resources.  It is safe to say that this mandate has not been accomplished.

In conclusion, it is evident that Ben Bernanke is failing his mandates.  We believe it must come down to one of the following reasons:

  1. Bernanke does not know how to achieve his mandates;
  2. The policy tools employed don’t work;
  3. He does not have the ability to implement policies that would work;
  4. He is not trying to achieve his mandates;
  5. He has goals other than his legal mandates;
  6. He does not look at the data, and believes he is succeeding.

We will leave it up to our readers to make their own conclusions.

Matt Marcewicz

Robert Barone, Ph.D.

June 17, 2011

Matthew Marcewicz is an Investment Advisor Representative of Ancora West Advisors LLC, Reno, NV, an SEC Registered Investment Advisor.  He is also a Registered Representative of Ancora Securities, Inc. (Member FINRA/SIPC).  Robert Barone is a Principal and an Investment Advisor Representative of Ancora West Advisors LLC, Reno, NV, an SEC Registered Investment Advisor.  He is also a Registered Representative and a Registered Principal of Ancora Securities, Inc. (Member FINRA/SIPC).Statistics and other information have been compiled from various sources.  Ancora West Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  A more detailed description of the company, its management and practices are contained in its “Firm Brochure”, (Form ADV, Part 2A).  A copy of this Brochure may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.


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