This year’s Nobel Prize in Economics was awarded to three economists, including former Federal Reserve Chairman Bernanke. During Bernanke’s tenure as chairman of the Federal Reserve, the Fed’s assets soared. It was only US$0.87 trillion in July 2007, and now it is approaching US$9 trillion. Most of the assets were increased during Bernanke’s tenure.
It is reasonable to say that it was Bernanke who changed the nature of the Fed and influenced other central banks. Today’s Federal Reserve is not so much a central bank as a large private equity fund. The central banks of mainstream countries are also following suit. For example, the Bank of Japan anchored its foreign exchange reserves to issue Japanese yen government bonds in the country, and the Swiss National Bank set up a sovereign fund to invest heavily in technology companies in the United States. In short, mainstream central banks holding assets and participating in investment directly or indirectly should have appeared after Bernanke became the chairman of the Federal Reserve.
As an economist, Bernanke has two theories that stand out, one is “helicopter money drop” and the other is “fire fighting”. When his predecessor Greenspan was the chairman of the Federal Reserve, the Fed’s primary task was to prevent hyperinflation and generally did not participate in financial investment. Bernanke studied the Great Depression of the United States from 1929 to 1933 and the bursting of the economic bubble in Japan from 1989 to 1992, and concluded that the free market mechanism would escalate the financial crisis into the Great Depression, and the “invisible hand” could not only calm down The crisis will also add fuel to the flames, escalating a local crisis into a national economic depression. At this time, the government should use its “visible hand” to directly intervene in the financial market, or use “helicopters to drop money”, or dispatch “fire brigades to fight fires”, in order to prevent the crisis from getting out of control. In Bernanke’s view, the Great Depression in the U.S. from 1929 to 1933 and the stock market crash in Japan from 1989 to 1992 were all caused by the inaction of the U.S. and Japanese central banks. Therefore, when Bernanke was in charge of the Federal Reserve, the Federal Reserve drove the “helicopter to drop money”, opening the door to the quantitative easing policy of the central bank.
I don’t want to talk about the past, the present, the history, or the theory. I just want to remind people that Bernanke’s theory and practice have changed the nature of the central bank. In particular, the Federal Reserve has new functions as the global central bank. It is normal for financial assets to directly participate in the market. In today’s world, the “promising central bank” supported by Bernanke’s theory is popular, and the award of the Nobel Prize in Economics seems to recognize Bernanke’s doctrine.
In the global financial market where “promising central banks” participate, there are two most notable changes: one is increased volatility, and the other is increased linkage. The fiscal and monetary policies of any country will be restricted and impacted by the external environment, and the uncertainty will inevitably increase. From the perspective of financial philosophy, the global financial market, like the progress of physics, has entered the research field of quantum physics. The decision-making behaviors of mainstream central banks influence each other, constantly showing the state of “quantum entanglement”.
Certainty conceals crisis, high probability encourages speculation, and the real market is eternal in uncertainty. This is the revelation of this year’s Nobel Prize in Economics awarded to Bernanke.
