Ben Bernanke Was Incredibly, Uncannily Wrong

Mises Daily | July 28, 2009
By Lilburne

We now have the diametrical opposite of the famous "Peter Schiff Was Right" video (a compilation of 2006 and 2007 clips in which Schiff, a financial expert who subscribes to Austrian economics, predicted the deep recession that would follow the bursting of the housing bubble).

The new, opposite video is a compilation of the 2005–2007 prognostications of Federal Reserve Chairman Ben Bernanke. In it, Bernanke is shown to have been just as embarrassingly wrong as Schiff was uncannily right.

Could their differences in economic understanding have anything to do with this remarkable dichotomy? I have transcribed most of the video, and offer my own comments interspersed with it.

July 2005

INTERVIEWER: Ben, there's been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?

BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong. We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth. We've got restricted supply in some places. So it's certainly understandable that prices would go up some. I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy.

This is not only wrong in hindsight; it's a complete misunderstanding of the issue. Bernanke said that the housing boom was fine because it was supported by, among other things, growth in jobs, incomes, and in the economy in general. But that very growth itself was supported by the housing boom! For example, most of the job growth was in the housing sector. Witness Bernanke's amazing levitating economy: its housing sector is held up by economic growth, which is held up by its housing sector. And it's just as ridiculous that he denied the existence of a housing bubble by pointing to low mortgage rates. The low rates were a chief cause of the housing bubble, and were a direct result of his actions as Federal Reserve chairman.

Full article HERE