Bernanke said of the Great Depression in his third Lecture at GWU:
First, the Fed failed to use monetary policy to prevent deflation and an economic collapse. Second, the Fed did not adequately carry out its responsibility as “lender of last resort,” even as thousands of banks failed. ”The Fed did not fulfill its intended mission” during the Great Depression.
Without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could’ve had a much worse outcome in the economy. Without strong government intervention the financial system could have faced a “total meltdown.”
Even as the crisis ebbed, the recession deepened, with gross domestic product shrinking at an 8.9 percent annual rate in the fourth quarter of 2008, the worst quarter in 50 years. The unemployment rate rose to 10 percent in October 2009, the highest since June 1983. The threat of a second Great Depression was very real.
You can see that Bernanke implies that this time “we did it right”, and avoided a catastrophe because our intervention was “forceful and stabilized the financial system”.
He simply won´t recognize the responsibility the Fed had in turning a “normal” recession into a “Lesser Depression”. The economy only plunged after mid-2008. By then the house bubble had popped more than two years before and financial problems had appeared since early 2007 and intensified some months later.
There were two things in his mind. His “creditism” bias geared his “save the financial system” actions, while his inflation target bias geared his monetary policy actions, which in practice, because of the “threat” of rising oil and commodities, turned strongly contractionary in mid-2008. How do we know that?
In words: When the financial crisis became noticeable in early 2007, money demand immediately increased (velocity fell). If money supply had not risen, nominal spending (NGDP) growth would have contracted. But money supply rose to accommodate money demand so nominal spending kept chugging along. Unfortunately, since early 2008 the FOMC became very worried about the possibility of inflation and inflation expectations becoming “unmoored”. And that remained the FOMC´s sentiment all the way through the September FOMC meeting, which took place AFTER the Lehman affair! The practical consequence of that “worry” was that although velocity continued to fall, money growth retrenched. With MV falling PY would also fall, a “no brainer”.
End result: The banks were “saved”, but workers were “doomed”! So no, Bernanke is no “Hero”, as the Atlantic Magazine tries to portray.