Friday, November 19, 2010

Bernanke Speaks Out: High U.S. Unemployment Is Not My Fault

It’s China’s fault.  So said Fed Chairman Ben Bernanke in a speech in Frankfurt on November 19, 2010.  The failure of China to allow its currency to appreciate more rapidly is the reason for global economic imbalances and high U.S. unemployment.

No more Mr. Nice Guy.  In defense of the Fed’s announced $600 billion quantitative easing to stimulate growth and job creation in the U.S., Bernanke also accused Congress of failing to do its part.  He said that Congress needs to adopt growth-enhancing short-run measures as it also lays out a path of long-run deficit reduction.  It would appear that Bernanke cares little if Congress refuses him another term as Fed chairman or demands his resignation.  Nor does he display any knowledge of China.

China is an old, proud civilization.  Having emerged from the humiliation of Western intrusion and occupation of Chinese territory, having endured the madness of the Cultural Revolution, having achieved the greatest economic progress in world history in the past 30 years, and having bought more than a trillion dollars of U.S. government securities and other real and financial assets, China is in no mood to kowtow to Bernanke.

It’s not too late for Ben, but he needs to take an intensive immersion course in Chinese culture and history. I suggest he begin with the Analects of Confucius, followed with a crash course on Chinese history.  He should then invite Chinese officials to instruct him on why China’s economy has performed so well since 1981, despite China’s reluctance to follow the guidance of Western professors who typically visit China for two weeks, diagnose its problems, and warn of a serious crash unless China does A, B, and C based on the professors’ models.

Doing so requires a certain measure of humility.  This may be difficult given the reputation that Fed chairmen have developed over the years as the most important figure in the global economy.

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