NPR logo A Question For Rick Perry When He Slams Bernanke's Money Printing

A Question For Rick Perry When He Slams Bernanke's Money Printing

Texas Gov. Rick Perry greets supporters at Tommy's Ham House in Greenville, SC, Aug. 20, 2011. RICHARD SHIRO/AP hide caption

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Texas Gov. Rick Perry greets supporters at Tommy's Ham House in Greenville, SC, Aug. 20, 2011.


Texas Gov. Rick Perry did a phone interview with Laura Ingraham's radio show Thursday and it didn't take long for the new frontrunner for the Republican presidential nomination to go after the Federal Reserve once more.

He didn't threaten Federal Reserve Chair Ben Bernanke by name again as he infamously did recently. He did, however, express unhappiness with the central bank for "printing more money."

"Americans get it about this Federal Reserve printing more money and devaluing the dollars that are already not worth what they were two years ago because of the just absolutely horrible monetary policies and stimulus and debt creation that this president, his administration and, frankly, a complicit Congress were involved in."

Here's the question someone should ask Perry the next time he pursues this argument. What would he have done about the deflation threat that worried central bankers and many economists in 2009 and 2010?


The threat of deflation — falling prices and wages — not inflation, was the big concern during that period. When the Great Recession took hold, falling house prices contributed to downward price pressures across the economy as did declining demand for a range of products and services.

And that all contributed to rising unemployment which put yet more downward pressure on wages.

For a while it appeared that the economy would be stuck in a price-cutting spiral or deflation. The New York Times has a good explanation of deflation.

Deflation makes money more valuable which means it takes more to convince people to part with their dollars. It also means that debts become more onerous because they have to be repaid in dollars of ever higher value.

Most people have come to fear rising prices or inflation because of how it erodes the value of savings and makes many products and services more expensive. But listen to economists and they sound even more scared of deflation.

Central bankers know how to attack inflation. They can raise interest rates as high as necessary until inflation's back is broken.

What makes deflation so fearsome to central bankers and economists is that there aren't as many tools to stop it. You can lower interest rates but when you get to zero, what then?

Well, if you're Bernanke you can make more money available by expanding the money supply in various ways, which is what he did, what Perry calls "printing money."

Putting more money into circulation should not only help an economy in a financially caused recession where lenders are reluctant to make loans; it should also put upward pressure on prices across the economy, slowing down or reversing deflation.

So, again, here's the question for Perry? How would he have fought the deflation threat?

Simon Johnson, former International Monetary Fund chief economist, recently took Perry to task for his Bernanke comments. Johnson keenly understands what the Fed chair was trying to stave off.

But arguably everyone with an interest in the value of the dollar, not just world-class economists, needs to understand that it was the deflation threat that the economy faced, and could face again, that explains in part why Bernanke took his extraordinary measures.