Mr. Bernanke’s Motto
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
A particularly trenchant editorial — “Mr. Bernanke Blinks”— is now on the rotary presses of tomorrow’s Wall Street Journal. The whole editorial repays a read, but the part of it that we like best is the reminder that in all of history no Fed chairman “has put more stock in offering ‘forward guidance’ to financial markets” than has Mr. Bernanke. “For him now to shrink at the market reaction he must have anticipated to his tapering guidance suggests a large failure of nerve,” the Journal said. “It also undermines the credibility of the Fed’s future policy guidance.”
This underlines what another sage, James Grant of the Interest Rate Observer, likes to call the “Ph.D standard.” His phrase is a reference to the conceit that a few highly educated technocrats could be so able to out-think the market as to be the basis for monetary policy. It’s a kind of “hubris-backed money,” as the editor of the Sun has been heard to mutter into his Manischewitz. The sign that Mr. Bernanke has become unmoored from even that standard is his infernal penchant for talking. He shares the tendency with the President.
We first wrote about this in an editorial called “The Verbal Dollar.” That was two-and-a-half years ago, when Mr. Bernanke was preparing to start the quarterly press conferences that have become a fount of the “forward guidance” that has just been upended. We had been steered by Mr. Grant to the famous exchange between the deputy governor of the Bank of England, Sir Ernst Harvey, and Lord Keynes. His lordship had asked Sir Ernst whether it was a practice of the bank never to explain what its policy was. Sir Ernst suggested that it was the bank’s practice to “leave our actions to explain our policy.”
When pressed, Sir Ernst explained: “To defend ourselves is somewhat akin to a lady starting to defend her virtue.” We quoted Mr. Grant as speculating that Mr. Bernanke was “reacting to the smoldering populist rage over the inflation he refuses to acknowledge.” Mr. Grant noted that the Bank of England, in “its glory days managing the pre-World War I gold standard,” said “next to nothing” but did “conscientiously exchange bank notes for gold, and gold for bank notes, at the statutory rate.” He invited a comparison with “our Federal Reserve, which prints acres of money, manipulates stock prices, suppresses interest rates — and can’t seem to stop talking.”
His point seems to have been proven truer by the month. It wouldn’t surprise us were the verbal nature of the Bernanke dollar to be reckoned by historians as its defining trait. It seems, we said two years ago, to be the opposite of the gold standard, and, we added, “why not, since gold and silence are linked.” In English, the first use of the phrase “silence is golden” turns out to have been in 1831 by the historian Thos. Carlyle, who translated the phrase from the German in Sartor Resartus, in which a character speaks of how “all the considerable men . . . forbore to babble of what they were creating and projecting.” Speech is great, he wrote, “but not the greatest.” He cited the Swiss aphorism, “Sprechen ist silbern, Schweigen ist golden*,” which could be trans-configured as “speech is money, silence is golden” and adapted as the motto of the Bernanke era.
* “Speech is silver, Silence is golden.