Market prices vs. Bernanke prices
Alex J. Pollock | AEIdeas
June 21, 2013

Reuters

U.S. Federal Reserve Bank Board Chairman Ben Bernanke takes a drink of water as he arrives to speak to a joint congressional hearing on the country's economic outlook on Capitol Hill in Washington April 2, 2008.

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Article Highlights

  • Fed Chairman Ben Bernanke gave the stock and bond markets a "barrel of whiskey"

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  • "Bernanke prices" will tend towards market levels as the Fed changes course

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  • Stock and bond prices fall as Fed initiates an economic "hangover"

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How shall we understand the big drop in stock and bond prices of the past two days?  Put simply, as a return to something more like market prices of assets than like the manipulated Bernanke prices to which we had become accustomed.

Benjamin Strong, the leading Federal Reserve actor of his day, famously decided to give “a little coup de whiskey to the stock market” in 1927. Ben Bernanke, in contrast, gave the stock and bond markets a barrel of whiskey.  We will observe how bad the hangover will be.

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About the Author

 

Alex J.
Pollock
  • Alex Pollock joined AEI in 2004 after thirty-five years in banking. He was president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the “Deflating Bubble” series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of CME Group, a director of Great Lakes Higher Education Corporation and the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.

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  • Phone: 2028627190
    Email: apollock@aei.org

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