Printing legal currency for use in the American economy is kind of a big deal, so it strikes us as deceptive when the the chairman of the Federal Reserve can’t seem to get his answers right to the basic question: Are you or aren’t you printing money, Mr. Bernanke? To get even more specific, is the Fed creating money out of thin air to finance the massive bond buying spree designed to resuscitate the economy? Let’s take a look at the words coming out of both sides of Helicopter Ben’s mouth.
“We’re not printing money.”
In recent weeks, Bernanke has gone on record to both CBS News and the Time Magazine website with the claim that the Fed absolutely was not printing money. A Time reader asked if he was creating money out of “thin air.” Bernanke responded by saying, “These policies are not leading to increases in the amount of currency in circulation.” He made a similar claim to Scott Pelley during a CBS News segment: “People talk about the printing press. That’s not what this is about. This policy does not increase the amount of currency in circulation. It does not increase in any significant way the amount of money in broader terms, say, as measured by bank deposits,” he said.
Alrighty then. There you have it. The Federal Reserve of the United States of America is absolutely not in the business of printing money at the moment. Except…
“We are printing money.”
But back in 2009, Bernanke told Pelley the following: “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money than it is to borrowing.”
Oh. So they are printing money and Ben Bernanke is a big, fat liar? Not really. The problem here is more a matter of clumsy semantics on the chairman’s part. He’s trying to say that the money created by the Fed isn’t circulating through the financial system – most of it sits idly in bank deposit reserves and, thus, isn’t a threat to create a wave of inflation.
For the love of Pete, why didn’t you just say that in the first place?
The American Monetary Association
Flickr / aplumb