This is the conundrum: either he believes (as indicated by his research of the late 90s and early 2000s) that deficits are sustainable and cause a crowding in effect where the policy rate is under the direct control of the Fed, or he believes that they are not (as in his Congressional testimonies). Bernanke simply cannot argue it both ways. And we know well that in practice the operational reality is the former. In sovereign currency nations as in the US, deficits are infinitely sustainable, do not crowd out, and do not put upward pressure on interest rates.
So yes, I too have been unable to resolve Bernanke’s paradox. How is it possible for someone to hold two completely incongruent intellectual positions? Either he has been intellectually dishonest when appearing before Congress fueling the deficit phobia of policy makers, or he has become intellectually lazy and has not taken the time to rethink the crowding out dogma he has learned in grad school in the face of his later academic work and practical experience, which point all evidence to the contrary.Read it at New Economic Perspectives
No, Mr. Krugman, Bernanke’s Conundrum is Completely Different
By Pavlina R. Tcherneva
I would call it "the Bernanke mystery" instead of the Benanke paradox. Something is going on in his mind that is a mystery to analysis. Has he forgotten what he once knew, is he in denial, or he is just afraid to lead? It's a mystery.