Bernanke and Edward Chancellor offer conflicting perspectives on the crisis in central banking

 Two new books set out sharply conflicting perspectives on underlying issues.

Arguably, Bernanke is the most influential thinker and practitioner on central banking of our era. His book, 21st Century Monetary Policy

Edward Chancellor, historian, asset manager, journalist and author. The Price of Time offers a history of interest back to the Babylonians

Behind each of them stands a different guru. For Bernanke, it is John Maynard Keynes

Bernanke insists, the Fed has been successful in preventing another Great Depression and returning the US economy to growth. I agree with him.

Chancellor emphatically does not. His guru is Friedrich Hayek

Chancellor condemns the low interest rates adopted by central banks as the root of almost all economic evils. Does this charge sheet make sense? Not much.

 Chancellor also has many complaints about the effect of low interest rates on financial instability and fragility. Yet it is unlikely that the modestly higher interest rates he recommends would have saved the world from financial crises.

The fundamental problem is that we have two objectives for policy: stabilising the real economy in the short to medium term and containing financial risks. One cannot hit two goals with one instrument. 

Today, the inflation targeting supported by Bernanke looks the least bad approach. But the question also remains how best to contain the financial risks emphasised by Chancellor. 

The most important structural source of excessive leverage is the tax deductibility of interest. We should eliminate that now.

Martin Wolf 27 July 2022

https://www.ft.com/content/e7cc3c01-08e3-47fc-9442-d45378b34bb8

 

Edward Chancellor, The Price of Time: The Real Story of Interest

https://englundmacro.blogspot.com/2022/07/edward-chancellor-price-of-time-real.html

One of America’s most prominent dismal scientists, former Federal Reserve chairman Ben Bernanke, returns with “21st Century Monetary Policy: The Federal Reserve From the Great Inflation to Covid-19.” 

https://englundmacro.blogspot.com/2022/07/one-of-americas-most-prominent-dismal.html