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Ben Bernanke’s Blog

The bigger the rate cut, the harder Wall Street falls in love with me

By Ben Bernanke

Bio & Blog

rebound.gifI’ve figured out Greenspan’s secret. When times are bad, just make a drastic cut in interest rates. It doesn’t cost me anything out of my own pocket, yet it will probably increase the size of my book deal down the road.

This rate cut has also had the pleasant effect of ending clear criticism from investment bank “economists”. For example, Goldman’s Jan Hatzius (who’s been begging me for this cut and discrediting my good name in the press) had only this to say according to the New York Times:

“By itself, it’s not necessarily a wrong thing to do if you’re worried about systemic stability,” Mr. Hatzius said. “Nevertheless, it’s a little tricky because it ties you from a short-term perspective to what happens in the stock market.” A sell-off could be viewed as a vote of no confidence from investors, he said.

When you’re reduced to using phrases such as “not necessarily a wrong thing”, you know you’re confused. That’s worse than Fed Speak. And what do I care about a vote of no confidence?

I’ve started to rethink the whole premise of time value of money. The financial press is already gunning for more cuts. Why not give it to them? To top this, though, I’ll probably need to cut rates to 0%. As much as we hate to admit it, economists have been wrong before. Thomas Malthus was wrong on population growth. Who’s to say we were right about money today being worth more than money tomorrow?

1/22/2008 8:12 PM, New York
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