The 2007-2011 unprecedented financial crisis finally has been gone for ten years now – a fair amount of time for us to make some wise judgment in terms of who was right who was wrong.
Mentioning “beautiful deleveraging” numerous times in his new book – The Great Debt Crisis-, Ray Dalio clearly demonstrated his view on supporting Bernanke in employing Quantitative Easing etc. policies as an effective solution, as a matter of fact, he highly praised the swiftness of Bernanke’s action, if there is the part that needs to be improved, it is, according to Ray, to do it faster, to be given more power and authority that was kept away from the Congress. As to his reason, it’s detailed in his book, and in my three series blogs too.
What’s worth noting, Warren Buffet also took his side, evidenced by this Youtube clip, the only caveat is that the legendary investor cautioned the Fed to act cautiously, and he recognized and pointed out the severeness of inequality issue in society.
On the other side, I took attention to the naysayers, particularly those famous naysayers such as Jim Rogers – cofounder of Quantum Fund with Gorge Soros, Nassim Taleb – renowned author of Black Swan, and David Einhorn – the billionaire hedge fund manager of Greenlight Capital.
Differing in a different way with regard to their reasons of opposing QE, or disliking Bernanke, they have one point of view unanimously in common: the fear of inflation, if not hyperinflation.
The most vehement opposer is Jim Rogers, explicitly calling Bernanke an idiot, disaster, part of the problem not the problem solver etc. But his argument is weak because he was not able to lay out a clear and logical narrative other than to cite the price of commodities and some other goods are rising, which later on, we all see, going downward. For instance, the gold price he invoked right around 2010 shows as in the below chart, from which, we can see it eventually subsided.
Nassim Taleb calls Bernanke’s approach as playing bigger risk to manage risk, paralleling him as a pilot who doesn’t pay any attention nor is willing to understand the risk during a flight. He vigorously condemned that QE, which is equivalent to printing money is immoral, punishing the sound, non-reckless savers for the mistakes those evil bankers, reckless mass people made. Being asked his solution, he stated austerity is the only antidote for the debt crisis.
David Einhorn is, among the three, the least intense attacker. He didn’t want to entirely keep away from rescuing the distressed banks, insurance companies by QE, he deliberately used a metaphor of eating one jelly donut makes one feel good, two makes one happy, while more and more jelly donuts actually will be harming the human body rather than the initial curing effect. He cautioned and asked Bernanke what if there is an inflation caused, and when Bernanke irresponsibly responded by claiming “100% sure there won’t be inflation”, David was apparently very much taken aback by Bernanke’s roughness and heedlessness.
To address the credible question on “inflation”, actually Ray gave a good answer in his book, cited here: