Ben Bernanke says that he believes inflation will remain low.
Peter Boockvar via Barry’s brings an old quote of Greenspan saying that gold is a good indicator of inflation.
Now gold is a few percentage points below its all time high.
So which of the great Fed Chairman’s is wrong?
I think Bernanke is saying “the right thing” much in the same way his famous “soft landing” remarks were said.
I preferred that to Ben being wrong on inflation expectations.
Interesting enough, Krugman take side with Ben, while Kasriel disagree.
I’ve put a table of current inflation predictions:
| High | Low |
| Gold | Paul Krugman |
| Paul Kasriel | Ben Bernanke |
| Me |
Fill free to vote in the comments, ill update the table as long as ill see fit.
I think Greenspan is getting senile, today he said that you can stop asset bubbles by increasing capital requirements. That just increases the cost of credit. The next time you have a real estate bubble, you’ll have the same problem, assuming that banks are still in the business of loaning against real estate. If you want to stop this problem, then eliminate the federal subsidies for real estate development and investment, then require people in that industry to put their own money at risk instead of someone elses. If Greenspan really wants to change the banking system, though, then simply ban 95% and 90% LTV loans. Require a bigger equity cushion. BTW, the “too big to fail” argument is a fallacious one. During the Great Depression, Canada had no bank failures. The reason was that their banks were very large. The banks closed branches, etc., but none of them failed. By contrast, the US was dominated by thousands of very small banks, and we had more than 10,000 of them fail. So there is nothing inherently unsafe about a banking system dominated by large banks. The real problem with large banks is that during good times, they don’t provide enough competition for each other.