Whoa!

Ben Bernanke was just asked by the NYT's Binyamin Appelbaum about whether there's an inconsistency between his current policy and what he used to advocate years ago as an academic.

If you don't know, this is a direct question about Paul Krugman's big NYT Magazine story called "Earth To Bernanke" in which he slams the Fed chair for not listening to his old self, particularly his old writings about Japan.

To clarify some more: As an Academic, Bernanke famously told Japan that they had to throw the whole kitchen sink and more at the problem. These days, Bernanke seems far more cautious.

Bernanke says that's totally wrong. Specifically he says that's "Absolutely incorrect."

Why? Japan was in deflation. We're not.

Here's the full comment, via a livestreaming text service:

Yeah, let me tackle that second part first. So

there's this, uh, view circulating that the views I

expressed about 15 years ago on the Bank of Japan are

somehow inconsistent with our current policies. That is

absolutely incorrect. My views and our policies today

are completely consistent with the views that I held at

that time. I made two points at that time. To the Bank

of Japan, the first was that I believe a determined

central bank could, and should, work to eliminate

deflation, that it's falling prices.



The second point that I made was that, um, when

short-term interest rates hit zero, the tools of a

central bank are no longer, are not exhausted there, are

still other things that, um, that the central bank can

do to create additional accommodation.



Now looking at the current situation in the United

States, we are not in deflation. When deflation became

a significant risk in late 2010 or at least a moderate

risk in late 2010, we used additional balance sheet

tools to return inflation close to the 2% target.

Likewise, we've been aggressive and creative in using

nonfederal funds rate centered tools to achieve

additional accommodation for the U.S. economy. So the,

the very critical difference between the Japanese

situation 15 years ago and the U.S. situation today is

that, Japan was in deflation and clearly, when you're in

deflation and in recession, then both sides of your

mandate, so to speak, are demanding additional

deflation.



Why don't we do more? I would reiterate, we're doing

a great deal of policies extraordinarily accommodative.

You know all the things we've done to try to provide

support to the economy. I guess the, uh, the question

is, um, does it make sense to actively seek a higher

inflation rate in order to, uh, achieve a slightly

increased pace of reduction in the unemployment rate?

The view of the committee is that that would be very,

uh, uh, reckless. We have, uh, we, the Federal Reserve,

have spent 30 years building up credibility for low and

stable inflation, which has proved extremely valuable,

in that we've been able to take strong accommodative

actions in the last four or five years to support the

economy without leading to a, [indiscernible]

expectations or destabilization of inflation. To risk

that asset, for, what I think would be quite tentative

and, uh, perhaps doubtful gains, on the real side would

be an unwise thing to do.

For full coverage of the press conference, see here >

UPDATE: Krugman responds >