I was a teenage Gramlich

By JIM NEWELL  |  April 4, 2012

Whatever we said, and God knows I didn't understand much of what I was saying back then, it was good enough to win the national championship — Mr. Bodley's first of two. Ben Bernanke made the announcement before an anxious crowd of students, teachers, family members, and Federal Reserve economists, after noting how "scary" it was to hear certain students (Tim) repeating whole sentences of his speeches back to him. It all felt incredible, as did the $5000 checks for "education" that Citibank presented each of us with; I mostly spent it on CDs and booze during the Atlantic post–high-school debauch known as "Beach Week." (More than once it's occurred to me that Citibank, the recently merged mortgage giant that required successive bailouts in the wake of the 2008 meltdown, would probably have liked to have the paltry $25,000 in Fed Challenge prize money back in its battered coffers — but it's easy to make the case that I had put my winnings to use in a fashion that had an undeniably stimulative effect on my local economy.)

My video review of our performance largely jibes with my memory of our spirited finals performance. Danelle came back strongly after a rough semifinal, and was able to silence judge Bernanke with this line of lines: "Liquidity is the oil in the engine of capitalism." Peter was able to say, "International trade is not a zero-sum game" during our question-and-answer session. It's unclear if this had any effect on our victory, but Peter's cool delivery gave the impression that this declaration, this single line could answer any question you ever had about economics.

But another of his solid answers that I'd forgotten about turns out to have been remarkably prescient. Bernanke had posed a fundamental policy dilemma to Peter: since low long-term interest rates provided such a stimulative effect — even though the Fed's primary stimulative tool was in setting overnight, short-term interbank loan rates— how would Fed policy makers keep long-term rates low?

In his reply, Peter noted that if it had to, the Fed could buy "vast quantities of long-term securities" and keep them on its balance sheet. The popular term for this action nowadays is quantitative easing, and Ben Bernanke has recently completed his second round of it in a desperate bid to jump-start growth in an economy ravaged by the collapse of the Potemkin housing boom.

Josh said something smart-sounding about money-market funds and real interest rates. Any high schooler saying "money-market funds" is good enough, no matter the context. Maybe Josh will be president.

Tim took his lumps from Gramlich (the real one, that is) in the question-and-answer round, sure, but still gave the best and most frequent answers of any team member. Tim is now a graduate student in history, and a Marxist.

And me? I noted that state budget cuts had a contracting effect on economic growth, and threw in a few other mediocre answers about the Taylor rule, the Non-Accelerating Inflation Rate of Unemployment, and other textbook terms that probably have no real place in Federal Open Market Committee conversations.

Most important, Peter and I didn't succumb to a single giggling fit.

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