Taylor on Zimbabwe Ben's Apologia

"[Fed] Chairman Ben Bernanke spent most of his speech to the American Economic Association on Jan. 3 responding to the critique that easy monetary policy during 2002-2005 contributed to the housing boom, to excessive risk taking, and thereby to the financial crisis. Many have expressed the view that monetary policy was too easy during this period. ... My critique, which I presented at the annual Jackson Hole conference for central banks in the summer of 2007, is based on the simple observation that the Fed's target for the federal-funds rate was well below what the Taylor rule would call for in 2002-2005. ... Mr. Bernanke's speech raises doubts about the Taylor rule by showing that another version of the rule would have called for very high interest rates in the first few months of 2008. But using the standard Taylor rule, with the GDP price index as the measure of inflation, interest rates would not be so high, as I testified at the House Financial Services Committee in February 2008. ... You do not have to rely on the Taylor rule to see that monetary policy was too loose. ... Yet even when inflation is low, the damage of boom-bust monetary policy can be severe as Milton Friedman stressed in his strong criticism of the Fed in the 1950s and 1960s. ... Indeed, some analysts are worried now about the Fed holding interest rates too low for too long, causing another boom-bust and a shorter expansion", John Taylor (JT) at the WSJ, 11 January 2010, link:

http://online.wsj.com/article/SB10001424052748703481004574646100272016422.html.

Richard Alford, formerly a New York Fed economist has a devastating 14 January 2010 critique of Zimbabwe Ben's (ZB) statements at Naked Capitalism, link: http://www.nakedcapitalism.com/2010/01/why-bernankes-defense-of-super-low-interest-rates-does-not-hold-up.html.

JT is a Stanford economics professor. I say ZB knows exactly what he is doing: keeping interest rates low to let the banks "ride the yield curve". I think ZB is a smart guy who produces obfuscatory talk to conceal the aim of current Fed policy. ZB's actions are standard for Fed heads. When monetarism ruled the Fed, the Fed could usually find at least one "M" which was growing within its target range.