Business columns: The Fed’s high-risk mind game

Tom Petruno
Los Angeles Times

Like most of us, Federal Reserve Chairman Ben Bernanke is frustrated with the economy, said Tom Petruno. Unlike most of us, he can do something about it. Just as he did in the immediate aftermath of the financial crisis, Bernanke is planning on “creating more money out of thin air.”

This is what central bankers call “quantitative easing”—basically printing money and using it to buy government-backed financial assets. But actually getting that money to flow through the economy is tricky. Even if banks receive an influx of cash, they remain reluctant to lend, and “many businesses don’t have any need to borrow because the economy is so weak.” So Bernanke is trying something new: “getting inside your head.” If he “can make you believe that prices will be rising faster in the next year or two,” you should be more inclined to make a long-delayed purchase or investment now, thereby spurring the economy.

Unfortunately, “the Fed could succeed too well” in this plan, unleashing inflation. And should Bernanke be “encouraging an economy that’s heavily in debt to create more debt”? Faced with the prospect of economic stagnation, Bernanke seems willing to take such risks.