Dr. Bernanke Gets a Phone Call
by Gary North
Zhou Xiaochuan is the Governor of the People’s Bank of China. Imagine that the following phone call were to take place.
Zhou: Hello. Dr. Bernanke?
Zhou: I wanted to let you know about the decision that our board has taken, after consulting with the Premier and the Politburo’s Standing Committee. We hope you are sitting down.
Bernanke: I get it. A little Oriental humor.
Zhou: You could say that.
Bernanke: What can I do for you?
Zhou: You can abandon your plan to purchase $600 billion of Treasury bonds.
Bernanke: The Federal Open Market Committee voted ten to 1 for this policy. I cannot change it now.
Zhou: We think it is an unwise policy. It will lower the value of the dollar. Americans will then buy fewer goods from China.
Bernanke: That is not how we see it. We think the policy is required to put Americans back to work. They will buy more goods from China and everywhere else when they are once again working.
Zhou: You will increase the supply of dollars, which will lower the dollar’s price internationally. Imported goods will cost Americans more. An increased supply of dollars will mean a lower price for dollars. It’s supply and demand.
Bernanke: That is the old economics. That is the logic of Adam Smith and Milton Friedman and those kooks from Vienna. We are committed to the new economics.
Zhou: Who teaches it? Where?