Contrast the plans of Congress to give up on job creation and move expeditiously to deficit reduction with the plans of the Federal Reserve to belatedly but nonetheless insistently and with near-unanimous participation engage in the monetary tools at their disposal to boost the economy and lower unemployment. There are serious questions about the beneficiaries of QE3 – banks look to be one winner – and I don’t think they are being terribly imaginative in their effort. But this speech by Ben Bernanke in Indianapolis yesterday did make a couple salient points that show that he understands the nature of the problem to some degree.
First, here’s how Bernanke explains the “communications channel.”
In the category of communications policy, we also extended our estimate of how long we expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015. That doesn’t mean that we expect the economy to be weak through 2015. Rather, our message was that, so long as price stability is preserved, we will take care not to raise rates prematurely. Specifically, we expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens. We hope that, by clarifying our expectations about future policy, we can provide individuals, families, businesses, and financial markets greater confidence about the Federal Reserve’s commitment to promoting a sustainable recovery and that, as a result, they will become more willing to invest, hire and spend.
He’s saying that interest rates will be low enough for a certain period, even if the economy improves, so people can make their purchasing decisions accordingly, without having to wait to figure out when the Fed will take away the punch bowl. That could definitely have economic implications, especially with interest rates this low. And, it implicitly acknowledges, as he says later, that the economy “the economy is not making full use of its resources” and that monetary policy can alleviate that.
Next, Bernanke dispelled a number of myths about fiscal and monetary policy. He said that he does not keep interest rates low to induce Congressional borrowing, nor does he keep those rates higher to induce austerity budgeting. “Using monetary policy to try to influence the political debate on the budget would be highly inappropriate,” he said specifically, which is the exact opposite of what, say, the European Central Bank is doing, resisting a purchase of sovereign debt until the affected countries submit to “conditions.”
In fact, Bernanke said that the deficit, the main preoccupation in Washington, is a long-term issue and not one we face immediately. In particular, Bernanke said, “They (Congress) must find ways to put the federal budget on a sustainable path, but not so abruptly as to endanger the economic recovery in the near term.” That’s obviously not spectacular, but it’s an improvement over some past rhetoric, and certainly over the “sky is falling” talk we normally hear in Washington. Further, Bernanke said of the fiscal slope that, in the event of Congressional action, “According to the Congressional Budget Office and virtually all other experts, if that were allowed to occur, it would likely throw the economy back into recession.” As the fiscal slope is basically an immediate deficit reduction program, it shows Bernanke as an anti-austerity figure in Washington.
Obviously I don’t agree with every piece of this speech – Bernanke lauded the new transparency he brought to the Fed as a way to rebut the desire for an audit of the institution – but on the economics, it’s pretty good.




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So…it took John Boehner to save Social Security from Obama’s “Grand
BackstabBargain” knife, and now fucking Bernanke (I spoke with his cousin once [pleasant enough, but no Alan Simpson when it came to charm]) is the only one saying that we should perhaps consider unemployment to be an issue?The “Obama cares more about average Americans than those nasty evil Republicans” meme takes yet another hit. It’s a turvy-topsy world, isn’t it?
(Yes, Boehner was seeking political advantage and Bernanke is merely talking economic sense, but I’m only evaluating outcomes here, not the motives behind their actions. JMO.)
Bernanke said no to austerity?!? Now I’ve wound up in an entirely unknown universe.
Berbanke, in his own words:
http://www.youtube.com/watch?v=9QpD64GUoXw
Oh, and here’s DD’s other hero, Krugman, on how to get us out of the 2000 recession:
FROM http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
And these are the a**holes America looks to for salvation.
Krudman is a very useful “schmart guy”.
We need fiscal policy to increase spending like on infrastruture projects, which I favor as a direct means to increase employment. But i would even take extension of the payroll tax cut as an added angle. Keeping rates low is an accmmodative policy as Big Ben says all the time.
But by itself low rates won’t help. The rate could be zero and no one would borrow. You need a thing called sales. You need the consumer to spend or the government to spend. Business will then hire and invest.
Austerity like in the Rs plan will curtail spending and bring on a recession, just like Ben said. I await the debate for a clue on where we are going.
You are right, comrade. At least for now, he is definetly in our corner and his voice is heard.
Maybe he figures O will be reelected and he wants to keep his job??
ACtually that worked. Just a little too much and no regulation. Busted.
Does anyone else notice we are at FOUR YEARS OF THIS DEPRESSION?
Yup, Boehner killed the grand bargain (mainly due to his and his party’s hatred of Obama), so should we thank him for that?
Should we also thank Bernake for going against Obama’s obsession (to put it lightly) with the deficit?
Bernanke’s speech twice called on Congress to put the budget on a “sustainable path,” which is bullshit. That makes Bernanke pro-austerity, not anti-austerity. There is no such thing as an unsustainable budget path.
He claimed the Fed should not try to influence fiscal policy, yet FDR’s Fed Chair, Marriner Eccles, played an active role in shaping fiscal policy, encouraging the creation of policies that became known as the New Deal.
He claimed that raising rates would increase the deficit. That’s right, AND INCREASING THE DEFICIT STIMULATES THE ECONOMY. Bernanke’s ZIRP policy is sucking money out of the economy and making the recession worse.
Bernanke is part of the problem. He didn’t get anything right.
Progressives will continue to fail until they understand economics.
And when the dollar collapses and Americans are envying the lifestyles of Mexicans all the advocates of printing to infinity will pronounce themselves blameless because “no one could have seen what was coming”.
Who was head of the Fed and the NY Fed while U.S. banks and Wall Street were busy collapsing entire economies?
Bernanke, whom Obama re-appointed, and Geithner, whom Obama elevated in prestige and power to Secretary of Treasury.
Oh, and voluntary disclosure, but only after threats of both auditing the Fed and getting rid of the Fed, is neither voluntary nor a satisfactory substitute for an independent audit. (Not that I actually believe that “independent” means anything anymore, if ever it did.)
I think Kerry had quite a bit to do with stalling the Grand Bargain (an oxymoron on the level of “Great Depression”).
I think both Parties wanted to postpone the specifics of any Grand Bargain until after next month’s election. Hence, the Sequester.
The bitter pill of the Sequester for Republicans was supposedly cuts to the military budget.
What are the chances of that actually happening after the conveniently–and symbolically–timed attack on our embassy in Libya and the anti-US demonstrations around the Middle East, not to mention Bibi’s visit to the U.S. and the U.N.?
Guess the seniors and the disabled will just have to patriot up and sacrifice for their country.