Ben Bernanke To Teach Economics To Ron Paul

Federal Reserve Chairman Ben Bernanke will have a few bullets the next time him and Ron Paul meet in a Congressional setting.

Since Bernanke's famous Jackson Hole speech, the S&P 500 has jumped 18%.

The risk premium on high-yield, high-risk bonds has fallen to 5.16%, down from 6.81%, according to Bank of America Merrill Lynch index data show.

Inflation expectations have skyrocketed, up 44.4% since the speech, and unemployment is at the lowest it's been in two years.

Peter Hooper, chief economist at Deutsche Bank, said QE2 was essential. It “was a key factor in taking deflation risk off the table. It certainly helped bolster longer-term inflation expectations, and it was a factor that contributed to the rally in the stock market. Overall, I give it a good grade.”

“QE2 has given us some opportunity to act on our debt and deficit, and we have not taken advantage of that,” House Financial Services Committee Chairman Spencer Bachus said at a March 2 hearing. “Any criticism directed at the chairman, you need to also sort of point that finger back at yourselves,” said Bachus, an Alabama Republican.

Despite the obvious benefits of quantitative easing, Ron Paul (R-TX) has had extreme reservations about the benefits of it.

“The real cause of price inflation, which is a deadly threat to us right now, is the Federal Reserve System and our monetary policy,” Paul said at the hearing.

Paul is a huge opposition to the Federal Reserve, and has even written a book called “End the Fed.”

Despite the benefits of QE2, inflation has started to creep in, especially in food and energy prices, as oil is hovering around $100 per barrel.

Fed policy makers acted on QE2 to ensure price stability, which along with full employment, are their two mandates.

“The Fed still faces a challenge in terms of exiting and unwinding its large balance sheet, and that's going to be a tricky process, to say the least,” Deutsche Bank's Hooper said.

William Dudley, chair of the NY Federal Reserve, said that QE2 was necessary to help the economy, by raising asset prices, and it never would've done it if the Fed thought that inflation would spiral out of control.

“People worry that these purchases will ultimately be inflationary, and I don't think they have anything to worry about,” Dudley said. “We are absolutely determined to prevent any long-term inflation problem.”

So next time Bernanke and Paul square off, Bernanke has a few more bullets in his gun to fire back at Paul. Let's just hope he won't have to use anymore.