It’s All Ben’s Fault

Well, I guess it’s semi-official now. The demonstrations in Egypt were caused by Ben Bernanke’s monetary policy. I heard it once, and my jaw dropped. Then, I heard it again. Now, it’s commonplace. What can I say?

I’ve wondered about “black box economics” lately, but this one really has me perplexed. What is the causation? Just where does the infamous slap in the face in Tunisia fit into the chain of causality? Did QE2 lead to the slap in Tunisia, which led to the self-immolation, which led to successful Tunisian demonstrations, which led to similar demonstrations in Egypt?

Or, maybe the Treasury purchases of U.S. government securities in the U.S. market caused food prices in Tunisia and Egypt to rise directly, skipping over the United States, and the slap was a sideshow. Interesting how we can export something we don’t even have. Treasury purchases get sterilized into excess bank reserves without a significant expansion of U.S. money, but some reserves seep out and cause an expansion in foreign money, which is only spent on food.

But where are the demonstrators in Egypt holding “food inflation” signs? I really haven’t seen any. This doesn’t look much like a food riot to me. It looks like a freedom riot. Imported inflation is not a hard problem to deal with. You just let your currency float against that evil doing dollar. Imported freedom is harder.

Of course, we’ll have to wait to see how it all turns out to know whether to give hapless Ben the blame or the credit.

Comments (5)

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  1. Namazu says:

    I hear you saying 1) Tunisia and Egypt must have a “core” inflation problem, since they can’t possibly have a food inflation problem, 2) they should combat any such inflation by devaluing their currencies–when they import about half their grain, spend 20-25% of their income on food, which is less processed and less subject to cost-savings tricks than American “food,” 3) your news sources haven’t informed you that food prices are a major grievance in those countries, 4) the Fed is not responsible for any of the recent rise in commodity prices–or at least it’s not relevant to the discussion, because of course there’s no inflation. Maybe my reading comprehension isn’t what it was when I took the SATs, but perhaps your reasoning skills aren’t what they were before you started to let cartoon bears get under your skin.

  2. Erosen says:

    Good point.
    His critics have gone too far in this area.


    Do you agree that the direct purchase of 600 billion dollars of treasury debt is what most woul call monetizing it? Has m2 spiked recently? Has the activist transparent post Greenspan fed really been an improvement?

    I agree with McCain, bring back AG.

  3. John B says:

    How do Fed purchases of treasury IOUs get into bank reserves?

    Doesn’t the Fed feel deflation is a threat? Isn’t the Fed keeping interest rates low to boost prices? Won’t efforts to boost prices here “seep” into prices globally?

    Don’t low interest rates encourage speculative trading leveraging. Aren’t banks lending hedge funds money to speculate in the global commodity markets?

  4. Walker says:

    Third paragraph seems to imply that there is no food inflation here in the US. This is just wrong. Do you buy groceries? Perhaps hedging has kept it somewhat at bay for many months but it is showing up on store shelves. Look at the difference versus a year ago in market prices for wheat, corn, coffee.

  5. Alexis says:

    Fair point, seems like a bit of a non-sequitur.