The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending.
BEN BERNANKEIn fact, the world needs more nerds.
More Ben Bernanke Quotes
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…the Federal Reserve has the capacity to operate in domestic money markets to maintain interest rates at a level consistent with our economic goals
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I come from Main Street, from a small town that’s really depressed.
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It’s true that the Federal Reserve faces a lot of political pressure and is unpopular in many circles.
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Under a cold turkey strategy, at each policy meeting the Federal Open Market Committee would make its best guess about where it ultimately wants the funds rate to be and would move to that rate in a single step.
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Nobody really understands gold prices and I don’t pretend to understand them either.
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Economics is a very difficult subject. I’ve compared it to trying to learn how to repair a car when the engine is running.
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The more guidance a central bank can provide the public about how policy is likely to evolve the greater the chance that market participants will make appropriate inferences.
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If you are asking me if I would advocate that the Chinese go to greater flexibility in their exchange rate, I certainly would.
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The best approach here, if at all possible, is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset-price bubble bursts in the future.
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I generally leave the details of fiscal programs to the Administration and Congress. That’s really their area of authority and responsibility, and I don’t think it’s appropriate for me to second guess.
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A gold standard doesn’t imply stability in the prices of the goods and services that people buy every day, it implies a stability in the price of gold itself.
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The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand.. a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.
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In a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation. In other words, the best way to get out of trouble is not to get into it in the first place.
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The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth and led to sharp declines in the values of many homes and businesses.
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The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.
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