By Pedro Nicolaci da Costa
WASHINGTON, Oct 14 (Reuters) - Federal Reserve Chairman Ben Bernanke on Sunday denied the U.S. central bank's highly stimulative monetary policy hurts emerging economies, saying stronger growth in the United States bolsters global prospects as well.
Bernanke has often defended Fed actions against domestic critics, who argue the policy of keeping interest rates near zero while ramping up asset purchases hurts savers and risks future inflation.
But in a speech in Tokyo, Bernanke addressed international critics of the policy who argue that the unorthodox Fed policies weaken the U.S. dollar and boost the value of developing country currencies, hurting their ability to export.
"It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies," Bernanke told an event sponsored by the Bank of Japan and the International Monetary Fund, in prepared remarks made available to reporters in Washington.
The Fed last month announced a new program of open-ended bond purchases that will be continued until there is substantial improvement in labor market conditions, barring a sustained and unexpected spike in inflation. To start off, the central bank will buy $40 billion in mortgage-backed securities per month.
"This policy not only helps strengthen the U.S. economic recovery, but by boosting U.S. spending and growth, it has the effect of helping support the global economy as well," Bernanke said.
When the Fed launched its second round of monetary policy stimulus, known as quantitative easing, in 2010 many finance ministers around the world accused the United States of pursuing a beggar-thy-neighbor policy.
Bernanke argued the open-ended nature of the third round of bond buys or QE3 makes the program more flexible and should make people feel more certain that economic growth, which registered a paltry 1.3 percent annual rate in the second quarter, will pick up steam.
"An easing in financial conditions and greater public confidence should help promote more rapid economic growth and faster job gains over coming quarters," said the Fed chief, a student of the Great Depression by training.
In response to the financial crisis and deep recession of 2007-2009, the Fed cut official interest rates to near zero and bought some $2.3 trillion in mortgage and U.S. Treasury securities in an effort to stimulate investment and boost employment.
U.S. job growth remains lackluster, but the unemployment rate did fall to 7.8 percent in September, its lowest in nearly four years.
For Bernanke, what is good for the world's largest economy is ultimately, on a net basis, good for the world economy as well.
"Assessments of the international impact of U.S. monetary policies should give appropriate weight to their beneficial effects on global growth and stability," he said.
Also on HuffPost:
Myth: The Fed actually prints money.
<a href="http://www.foxbusiness.com/industries/2012/08/17/chance-fed-printing-more-money-jumps-to-60/">People commonly say</a> that the Fed itself prints money. It's true that the Fed is in charge of the money supply. But technically, <a href="http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html">the Treasury Department prints money on the Fed's behalf</a>. Asking the Treasury Department to print cash isn't even necessary for the Fed <a href="http://www.huffingtonpost.com/2012/03/21/federal-reserve-profit-2011_n_1369354.html">to buy securities</a>.
Myth: The Federal Reserve is spending money wastefully.
Both CNN anchor <a href="http://www.huffingtonpost.com/2012/08/31/cnn-erin-burnett-federal-reserve-stimulus_n_1848210.html" target="_hplink">Erin Burnett</a> and Republican vice presidential nominee <a href="http://thinkprogress.org/economy/2012/09/07/813011/paul-ryan-jobs-qe/" target="_hplink">Paul Ryan</a> have compared the Federal Reserve's quantitative easing to government spending. But <a href="http://www.huffingtonpost.com/2012/03/21/federal-reserve-profit-2011_n_1369354.html">the Federal Reserve actually has created new money</a> by expanding its balance sheet. <a href="http://www.huffingtonpost.com/2012/03/21/federal-reserve-profit-2011_n_1369354.html">The Fed earned a $77.4 billion profit</a> last year, most of which it gave to the U.S. government.
Myth: The Fed is causing hyperinflation.
<a href="http://krugman.blogs.nytimes.com/2011/12/15/inflation-predictions/" target="_hplink">Some</a> <a href="http://www.businessinsider.com/niall-ferguson-has-been-wrong-on-economics-2012-8" target="_hplink">conservatives</a> <a href="http://www.businessinsider.com/ron-paul-is-putting-on-a-great-show-right-now-in-front-of-bernanke-2012-2">have claimed</a> that the Federal Reserve is causing hyperinflation. But inflation is actually at <a href="http://www.nytimes.com/2011/09/18/sunday-review/the-facts-on-the-fed.html" target="_hplink">historically low levels</a>, and there is no sign that is going to change. <a href="http://www.bls.gov/news.release/cpi.nr0.htm" target="_hplink">Core prices have risen</a> just 1.4 percent over the past year, according to the Labor Department -- below the Federal Reserve's <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm" target="_hplink">target of 2 percent</a>.
Myth: The amount of cash available has grown tremendously.
<a href="http://www.nytimes.com/2011/02/10/business/economy/10fed.html?_r=1">Some Federal Reserve critics claim</a> that the Fed has devalued the U.S. dollar through a massive expansion of the amount of currency in circulation. But not only is inflation low; <a href="http://www.businessinsider.com/the-animated-gif-of-boy-throwing-money-out-of-the-window-is-not-a-metaphor-for-qe-2012-9">currency growth also has not really changed</a> since the Fed started its stimulus measures, as noted by Business Insider's Joe Weisenthal.
Myth: The gold standard would make prices more stable.
<a href="http://www.businessinsider.com/ron-paul-is-putting-on-a-great-show-right-now-in-front-of-bernanke-2012-2">Rep. Ron Paul (R-Tex.) has claimed</a> that bringing back the gold standard would make prices more stable. But prices actually were much less stable under the gold standard than they are today, as <a href="http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/"><em>The Atlantic's</em> Matthew O'Brien</a> and <a href="http://www.businessinsider.com/why-conservatives-like-the-gold-standard-2012-8">Business Insider's Joe Weisenthal</a> have noted.
Myth: The Fed is causing food and gas prices to rise.
<a href="http://www.huffingtonpost.com/2012/09/08/erin-burnett-federal-reserve_n_1866971.html">CNN anchor Erin Burnett claimed in September</a> that the Federal Reserve's stimulus measures have caused food and gas prices to rise. But many economists believe global supply and demand issues are influencing these prices, not Fed policy. And <a href="http://www.huffingtonpost.com/2012/09/08/erin-burnett-federal-reserve_n_1866971.html">there actually is no correlation between the Fed's stimulus measures and commodity prices</a>, according to some economists Paul Krugman and Dean Baker.
Myth: Quantitative easing has not helped job growth.
<a href="http://www.forbes.com/sites/michaelpento/2012/05/01/why-higher-inflation-destroys-jobs/">Some Federal Reserve critics</a> claim that the Fed's stimulus measures have destroyed jobs. But <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm">the Fed's quantitative easing measures actually have saved or created more than 2 million jobs</a>, according to the Fed's economists. In addition, JPMorgan Chase chief economist Michael Feroli told Bloomberg last month that <a href="http://www.bloomberg.com/news/2012-09-10/bernanke-proves-like-no-other-fed-chairman-on-joblessness.html" target="_hplink">QE3 will provide at least a small benefit</a> to the economy.
Myth: Tying the U.S. dollar to commodities would solve everything.
<a href="http://articles.nydailynews.com/2012-08-16/news/33236684_1_monetary-policy-inflation-currency-debasement">Rep. Paul Ryan (R-Wis.) has proposed</a> tying the value of the U.S. dollar to a basket of commodities, in an aim to promote price stability. But <a href="http://www.theatlantic.com/business/archive/2012/08/forget-paul-ryans-budget-his-scariest-idea-is-about-the-federal-reserve/261066/">this actually would cause prices to be much less stable</a> and hurt the U.S. economy overall, as <em>The Atlantic's</em> Matthew O'Brien has noted.
Myth: Ending the Fed would make the financial system more stable.
<a href="http://www.amazon.com/End-Fed-Ron-Paul/dp/B004IEA4DM">Rep. Ron Paul (R-Tex.) claims</a> that ending the Federal Reserve and returning to the gold standard would make the U.S. financial system more stable. But <a href="http://www.bloomberg.com/video/should-the-u-s-return-to-the-gold-standard-wsDVrOKATTqyTaG5yBY1kQ.html">the U.S. economy actually experienced longer and more frequent financial crises and recessions</a> during the 19th century, when the U.S. was using the gold standard and did not have the Fed.
Myth: The Fed can't do anything else to help job growth.
<a href="http://www.nytimes.com/2011/07/31/business/economy/whats-with-all-the-bernanke-bashing.html">Many</a> <a href="http://www.guardian.co.uk/business/economics-blog/2012/jun/27/federal-reserve-runs-out-of-options">commentators</a> have claimed that there simply aren't any tools left in the Fed's toolkit to be able to help job growth. But <a href="http://www.bloomberg.com/news/2012-07-09/fed-harms-itself-by-missing-goals-stevenson-and-wolfers.html">some economists</a> <a href="http://www.boston.com/bostonglobe/ideas/articles/2011/08/28/the_i_word/">have noted</a> that the Fed could target a higher inflation rate to stimulate job growth. <a href="http://economix.blogs.nytimes.com/2012/04/25/bernanke-on-what-the-fed-can-do/">The Fed, however, has ruled this option out</a> -- for now.
Myth: The Fed can't easily unwind all of this stimulus.
<a href="http://www.salon.com/2012/09/01/ben_bernanke_speaks//">Some commentators</a> <a href="http://seekingalpha.com/article/161203-fed-unwinding-won-t-be-easy">have claimed</a> that the Fed can't safely unwind its quantitative easing measures. But the Fed's program involves buying some of the most heavily traded and owned securities in the world, Treasury and government-backed mortgage bonds. The Fed will likely have little problem finding buyers for these securities, all of which will eventually expire even if the Fed does nothing. But <a href="http://economistsview.typepad.com/timduy/2012/09/plosser-opposes-the-1933-37-expansion.html">economists have noted</a> that once the Fed decides it's time to unwind the stimulus, the economy will have improved to such an extent that this won't be an issue.