The Swedish academy has awarded the Nobel Prize in Economics to Ben Bernanke, Douglas Diamond and Philip Dybvig for their contributions to the understanding of banking and financial crisesalternative theories about its causes, its consequences and how to prevent them.
From the outset, the presence of a person so connected to current economic events is somewhat shocking. Bernanke is not only an academic or scholar who has made a career out of studying, but he has been a leading figure in contemporary economic policy. as chairman of the Fed (a position he held between 2006 and 2014), and also as the main economic adviser to the President of the United States in 2005.
As a great scholar of the Great Depression, his study focuses on explaining the consequences of banking crises in terms of the allocative efficiency of the financial market and for this he analyzes the credit channel to explain the prolonged recession the 1930s in the United States. Bernanke analyzes how financial disturbances reduce the credit allocation process because, in a turbulent phase, the high cost of financial intermediation limits its availability. The conclusion is that in an acute financial crisis, banking markets are imperfect and ineffective monetary policy.
Almost 80 years later Bernanke faced the GCF at the head of the most powerful central bank in the world whose effects were global and brought down a few countries (the PIGS), Spain among them despite the deniers of the rescue.
The problem is that recognition in the form of the Nobel Prize in Economics is overshadowed by the effects of what we are experiencing today as a result of the decisions that he himself made at the time. And it is that Bernanke went down in history as the architect of the largest monetary expansion in Fed history.
His strategy to combat the financial crisis basically consisted of reducing short-term interest rates to almost 0%
His strategy to combat the financial crisis basically consisted of reducing short-term interest rates to almost 0% while pushing down long-term interest rates by massive purchase of bank debt (mortgages and loans) and public debt (Treasury bonds) through a chain of Quantitative Easings (QE). It must be remembered that the size of all this debt exceeded 4 trillion dollars and 25% of the American GDP.
Bernanke ushered in a synchronized policy and followed by all central banksTwenty years before, Japan did it continuously and unsuccessfully, which ended up leading to the highest inflation seen in the US and the UK in three decades or ever known by the euro.
Eight years later and after two different mandates at the Fed, one to come to an end, Bernanke’s theory that such decisions had to be made to save the banks has as a consequence the threat suffered by those same countries Back to economic recession.
That is why thinking that the Nobel Prize is or is not fair can be a debate without much sense from an academic point of view. What I am wondering is whether the Swedish jury took into account the moral consequences of the past acts of the winners.
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Bernanke, Nobel Laureate in Economics