Turns out Bernanke was right about inflation

Aha!

I believe James Thurber wrote a parody of this very passage, which he was filmed reading in a newsreel of the time (I saw the newsreel as part of my American History class in High School).

After an absurdly convoluted and self-referential sequence of explanations for the Depression, Thurber concludes rather forlornly "....and then, of course, there's always the Gulf Stream."

Bernanke already gets 5 stars in my grade book for being a student of history, rather than a celebrity of the present, like Greenspan. Please, no more prima donna Fed Chairmen who think they can walk on water and never could spell the word humility. Boring Bernanke is the steady hand we need.

you are an idiot or a bribed junk.

there is inflation in octber 40% - fed printing money 300% annual.

whatever, I think you are corrupted.

Good to see Justin put in a good word for Bernanke. I agree wholeheartedly with Chuckles above.

Saying "Bernacke was right" means that Bernacke knew that the housing bubble would collapse, and that the (indirect) result of that collapse would be a near global fiscal meltdown.

And if he knew that, and sat back and did nothing -- well, that wasn't too smart.

Personally, I think Bernacke should have used the "threat of inflation" to raise rate back then -- it would have provided him with more options when the s*** hit the fan.

Of course the decision to slash rates today was pointless in the extreme -- consumer confidence is in the toilet, and that means that Xmas sales are going to be horrible this year. That, of course, means layoff as business are stuck with unsold inventory that they have to get rid of before they bring workers back.

I'm fascinated to see velocity emphasized in that ol'-time economics. I remember the concept from high school, and periodically go looking for discussion. Never seems to be mentioned any more. But given a certain money supply, isn't the size of the economy inherently a function of the velocity of circulation of that money?

Really curious: why doesn't anybody talk about this any more?

What Paul said.
.
If he knew about fighting deflation, he must have known about the housing bubble. To the extent that he did and took no corrective action, Bernanke is a fool. Otherwise, I would just say it like my grandfather told me one day...even the sun shines on a dog's....

"Saying "Bernacke was right" means that Bernacke knew that the housing bubble would collapse, and that the (indirect) result of that collapse would be a near global fiscal meltdown."

Bernanke talked about the NON-existence of a housing bubble just before his nomination to Fed chairman in 2005:
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html

In contrast, Mark Thorton over at the Mises Institute talked about the housing bubble, its collapse, and the bailout of financial companies in this article written back in 2004:
http://mises.org/freemarket_detail.aspx?control=500

The deflation and deleveraging we are seeing now, while destructive, is not a catastrophe to be avoided, but a correction of past market distortions. Bad investments are being liquidated and the economy as a whole is being forced back into a less wasteful state. All that the slashing of interest rates will do is put us right back into another boom-bust cycle, but with the wonderful addition of increased moral hazard thanks to the federal bailout of financial firms. Bernanke was either wrong or lying before to claim there was no housing bubble. He is wrong or he is lying now about slashing interest rates as a cure for the problem.

The sad thing is that it will take several years to see this thing pan out once again and that next to no one will realize or admit the connection between loose monetary policy and our next big bubble.

You couldn't be more wrong. "Core inflation" is not real inflation. Just because it's inconvenient that oil and food are brittle on the supply side and prices are not stable doesn't mean they should be excluded from a consumer basket of goods, because, well, every consumer MUST buy these things.

The housing and credit bubbles fed unsustainable consumer demand levels. Not surprisingly, prices shot up. The credit crunch was the system reacting to this unnatural state, and really, fixing it.

The dollar's recent rise is primarily an effect of panicked investors seeking a safe haven in the reserve currency (since the dollar is highly unlikely to collapse). This is only temporary. As the recession intensifies, the recent explosion in the money supply will cause investors to flee dollar-denominated assets with the same (or greater) eagerness they're pursuing them right now. Lowering the rate to 1% is a huge mistake, one which will very likely bring more instability to the financial markets.

I hope Bernanke is making the right decision, but it seems that could only happen by some unforeseen anomaly, and not the application of sound economic principles.

As noted in other comments, he should have seen the obvious impending crisis beforehand. His colossal mismanagement and obliviousness outweigh his small achievements. The recent rise in the dollar is the direct (temporary) result of Bernanke's failures, not his successes.

Bernanke and Paulson may be doing what Keynes said was the best, by prolonging the time till the collapse by whatever means necessary, but it will not avoid such a collapse. Allowing the correction and liquidation to happen, well that would be a good thing. Remember, according to Keynes, and one of his founding principles for the general theory of economics was that saving essentially hemmoraged money out of the economy. He missed a couple of huge points. Consumption hemmorages money out of the economy as valued utility is consumed. Savings is actually investment, and recapitalization, so yelling about all the people hording money in savings is really a misnomer. Nobody's leaving anything sit in bank vaults, they're just not handing out garbage loans to people who can't afford them anyway. The puzzle to me is Credit Default Swaps. That one man should take out insurance on another mans asset is a rediculous propesition. Can I buy some life insurance on Dick Cheney? I'm sure I'd pass the blood tests.