CHAPTER FIVE

From Bubble to Bubble

NO CENTRAL BANKER HAS HAD to adapt his views more under the public eye than Ben Bernanke, the chairman of the Federal Reserve Board. In February 2004, in a speech to the Eastern Economic Association, Bernanke, then a governor of the Federal Reserve Board, spoke of the “Great Moderation,” the observation that the fluctuations of output and inflation in industrial countries had come down steadily since the mid-1980s. Because the Holy Grail of economic management is strong, steady growth, without booms, busts, or high inflation, this trend suggested that something was working.

Bernanke considered three possible explanations: first, that we might have just been lucky, with the world economy experiencing fewer ...

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