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 Bernanke was appointed by a Republican President seemed insignficant 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 1970’s.  Today’s economic data releases support that observation.  Retail sales rose less than expected, while producer prices rose more than expected.  Remember the 1970’s?

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

To escape the stagflation of the 1970’s, 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 cost-push.  That economy was simply over-heated.  While the symptoms of the 1970’s may be similar to today’s symptoms, their causes were different.  The world environment was also very different.  No unilateral decision by the U.S. will be enough to return the world to the 1990’s.