Business

Ben-flation caused by Fed’s failed policy

The economy is broken.

Who says? Ben Bernanke does.

You don’t have to do much interpreting of the Federal Reserve chairman’s speech yesterday to draw that conclusion. The guy, to his credit, was mostly honest (and probably more than a little bit frustrated) when he spoke before the National Association for Business Economics Annual Conference.

Wall Street, of course, hears what it wants to hear.

Until Bernanke comes right out and screams “everything is all better” the financial community will interpret every one of his messages the same way: business conditions aren’t very good yet so the Federal Reserve will have to print more money.

Wall Street is clearly addicted to the Fed’s junk.

Stock prices rose nicely yesterday mainly on Wall Street’s hope that Bernanke will be forced to give us another dose of Quantitative Easing, the policy of printing money to purchase government bonds.

It didn’t hurt that this week concludes the first quarter of 2012. And with stocks having their best three months since 2009 — thanks mainly to the efforts of the Fed — there is little that could make stocks roll over right now.

Professional money managers, after all, want to be able to report those outsized gains to their customers. So don’t try to take that meaty bone away from the dogs.

In fact, stock prices have risen about 23 percent in the past six months. What happened six months ago? Back in September the Fed finally announced the long-awaited Operation Twist, which is a slight variation on the old theme of money printing.

Bernanke has been extraordinarily successful in pumping up stock prices; not very good, however, in getting the economy going.

Why? Because the economy is not acting normally. The economy is broken.

Let me explain this better than I apparently did last week.

The actions taken so far by the Fed should have gotten the economy booming. Interest rates this low should have caused a resurrection in the housing industry. And companies should be more than confident enough to hire tons of workers.

Instead, all that Bernanke has really accomplished — aside from getting stock prices higher — is to raise inflation levels. It’s funny but no matter how hard I look I don’t see any mention of inflation, and especially rising gasoline prices, in Bernanke’s speech yesterday to the Conference.

Yet inflating gas prices — and other signs of Ben-flation — are what’s clearly causing the most disruption in the household economy today.

We all do it. If something is embarrassing, simply don’t mention it. So Bernanke either doesn’t realize the impact higher gasoline prices are having (and he’s not a stupid man) or he’d prefer to ignore this little nuisance.

Bernanke has had to keep monetary conditions so loose for such a long period of time that even the slightest improvement in the economy is going to cause prices — and interest rates the Fed doesn’t control — to jump.

That’s happening already.

And those higher interest rates and prices will cause the economy to slow, even before it’s gotten up to go-cart speed.

But Bernanke’s problems go even deeper than that. He and others at the Fed clearly can’t even figure out what the economy is doing.

“Importantly, despite recent improvement, the job market remains far from normal; for example, the number of people working and total hours worked are still significantly below pre-crisis peaks,” said Bernanke, who added that the unemployment rate is “well above” where economist think it should be.

But job growth, says Bernanke, mightn’t even be as high as it is when you consider the “relatively modest” growth in the Gross Domestic Product (GDP.)

So where’s the error?

Is the GDP understating growth, or are the labor market statistics recording more jobs than there really are?

Bernanke clearly thinks the job market is still out of sorts. “We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” he said yesterday.

Bernanke explained that something called the Gross Domestic Income — which few people follow but which I’ve mentioned a number of times before in this column — seems to back the GDP’s accuracy over the accuracy of the jobs figures.

But even the GDP, Bernanke says, might be recording erroneously strong growth. “For example, gross domestic income, an alternative measure of economic activity . . . is currently estimated to have increased less quickly than GDP in 2011,” Bernanke added.

So let me try one more time to help Bernanke out: job growth is being overstated by the Labor Department’s habit of guesstimating positions created by newly-formed companies; the GDP is too high because the Commerce Department uses an incorrectly low measure of inflation when doing its calculations; and, inflation is kicking everyone’s ass right now.

In other words, not only is the economy broken but the statistics used to measure it are also inoperative.

john.crudele@nypost.com