Yesterday, I met with a person who was extremely critical of Ben Bernanke, Chairman of the Federal Reserve.  He felt the balance sheet expansion of the Fed was un-American and was simply an effort to save a Democratic President.  (Pointing out that Benanke was appointed by a Republican President seemed insignificant to him.)

Thinking about it afterwards, I believe Bernanke did everything he could, including some very imaginative things, to prevent a return to the depression of the 1930s.  He was very successful in preventing a depression.  He was more interested in saving the country than saving a President, any President.  At the same time, he set the stage for a return to the stagflation of the 1970s.  Last week’s economic data releases support that observation.  Retail sales rose less than expected, while producer prices rose more than expected.  Remember the 1970s?

If Bernanke’s choice was between the 1930s or the 1970s, he made a good choice.  He picked the frying pan instead of the fire.  Of course, we could still die in the frying pan, albeit more slowly. 

To escape the stagflation of the 1970s, Fed Chairman Paul Volcker raised interest rates enough to intentionally cause a recession.  But, that was a different type of inflation, i.e., demand-pull instead not the cost-push inflation we face today.  The 1970s economy was simply over-heated.  While the symptoms of the 1970s may be similar to today’s symptoms, their causes were different.  The world environment was also very different.  Unfortunately, no unilateral decision by the U.S. will be enough to return the world to the 1990s.  Remember how good the 1990s were?

Blaming this complicated mess on any one person is pointless at best and destructive at worst.