Larry Kudlow: “$31 trillion in debt has gone too far”

As you know, the former chairman of the Fed Ben Bernanke just received a Nobel Prize in economics. A friend of mine suggested it was the worst economics Nobel prize since Paul Krugman.

I’m not sure I go that far, but it’s probably because I know Ben and respect him as an excellent civil servant and a very fine former professor at Princeton. In fact, being a Republican on the faculty of Princeton is not an easy thing.

So that’s not personal, but, but, but, but, I think his stop-and-go policies, especially in the early 2000s, when he kept interest rates too low for too long, when he created far too high rates – fueled by liquidity, when he took a strong dollar and made it a weak dollar and when all his unhealthy adjustments created a boom in gold, commodities and housing – I think it was a big mess and that mess led to a financial meltdown, more specifically a mortgage crisis that he had to bail us out of later.

It’s like a firefighter who starts a fire and then wants to take credit for putting it out. Not good. This is too reminiscent of the mistakes made by J. Powell almost 2 years ago.


Bernanke after 9/11 was worried about deflation, so he was the author of a major league money supply helicopter drop, when in fact George W. Bush’s tax cuts succeeded in stimulating economic growth after 9/11.

I raise this question because Bush has moved to the supply side. He’s not credited with it, but he should. It cut the top personal tax rate and eliminated tax rates on capital gains and dividends.

So when everything was less taxed, including investment, we had more and the Bush boom didn’t require a major opening of the monetary taps. We were fine, the offer was working, the Laffer Curve was working, but Ben Bernanke wasn’t looking and that’s what got everyone in trouble. Sound familiar?

Post-Covid, the V-shaped recovery in late 2020 and early 2021 was ignored by Biden’s socialists and J. Powell’s modern monetary theorists. Remember?

Everyone was cheerleading for a $2 trillion stimulus package. That is, everyone in the left camp, but we didn’t need it, it started a great inflation and J. Powell opened these monetary taps wider and wider. Even if the economy was growing at 6%, bequeathed by Donald Trump’s tax cuts, deregulation and energy dominance.

So here we are again. Only it’s a reverse rescue. Bernanke had to save America, he thought, by turning the taps on, then off, then on. J. Powell kept the taps on, opened them wider and now he’s crashing until there’s no tomorrow.

I don’t know if it’s modern monetary theory, or what, but I know that either way it was bad monetary practice. There is a simpler and gentler way. Keep the dollar stable against commodities and real goods, keep the faucets mid-open and we will have price stability. Leave growth incentives to fiscal and regulatory policies and spending restraints in their place.

The monetary the lever is for inflationTaxation leverage is for growth. Starting with Ronald Reagan, Jack Kemp and Art Laffer and Steve Forbes and a whole bunch of us – we’ve been saying this for over four decades.

Now, one last point on Ben Bernanke. I don’t know why he and others are so determined to bail out failing institutions. During this financial crisis, we were lucky enough to get rid of real turkeys, like Fannie and Freddie – who should have been privatized or remember the madness: Bear Sterns was bailed out. Merrill was sold and Lehman was left bankrupt. Whole swaths of AIG insurance could have been dropped or abandoned, but they were bailed out.

John Taylor of Stanford has often written that it was the unpredictable and erratic bailout policies that caused as much, if not more, damage to the financial world than the opening of the monetary taps after the crisis. Governments should not pick winners and losers.


Federal Reserve Board Chairman Jerome Powell is scheduled to testify before Congress on the economy Wednesday, June 22, 2022 and Thursday, June 23, 2022. (AP Photo/Jose Luis Magana) (AP Photo/Jose Luis Magana/Associated Press)

Yet today, it’s amazing to me that Fannie and Freddie are now the property – lock, stock and barrel – of the US government, aka the taxpayers. We should not be bailing out student loans, mortgage lenders, gas prices, smokers, banks, automakers, semiconductor makers, electric vehicle makers, wind and solar farms and insurance companies.

How about making my day: no more bailouts or making my day: $31 trillion in debt has gone too far. You do not think ?

This article is adapted from Larry Kudlow’s opening commentary on the October 11, 2022 edition of “Kudlow

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