subject: Did Fed Chair Bernanke Lie to America on 60 Minutes? [print this page] Did Fed Chair Bernanke Lie to America on 60 Minutes?
The answer to the question is technically no but substantively yes. There was much speculation before and has been even more speculation afterward as to why the fed chair "really" chose to appear on 60 Minutes.
Bernanke emphatically stated that current actions by the Fed will not stimulate inflation because the Fed is in fact not increasing the money supply (not printing money). Now most high school economics students can tell you that the Treasury Department's Bureau of Engraving and Printing is where money is actually printed, not the Fed. But let's be clear that while not technically paper money, Fed credit has the same effect in the marketplace.
What's troubling me about the nuances of the Fed comments is that according to Bernanke credit utilized to buy assets is not money and has no effect on prices. Huh? Are we not still suffering as a nation from the greatest real estate bust in 100 years caused by the unwise use of credit?
The second point of discussion centers on Bernanke's comment that the Fed can control inflation and reverse its accommodative policy in 15 minutes by raising rates. Ok, so I might be willing to let that one go if the enormous amount of stimulus applied by the Fed had been successful in stimulating growth and jobs in the economy. Raising rates in the absence of plentiful jobs and organic growth in the economy is in no way feasible without disastrous effects. Bernanke stated that he may actually expand the $600 Billion bond purchases he announced with great fanfare in October (do the math on the deficit for 2011 and you can clearly see this "is" monetizing the deficit), strangely("not!") all these purchases have weakened bond prices, weakened the dollar, and completely failed to produce economic stimulation.
A few comments on the payroll tax cuts which actually puts more money in the hands of households who are fortunate enough to have jobs. This is the first correct baby step taken by the Fed thus far since the first bailout which did prevent the entire global banking system from collapsing. The payroll tax cut is clearly the broadest stimulus move since this bear market started and will help economic fundamentals a little bit. However don't get giddy yet because this is no where near large enough to make enough difference in the finances of most households (average household benefit roughly $1000 annually) and therefore wont likely do much to spur demand.
As I have stated many times before we need massive tax cuts perhaps rebates of the last three years taxes paid to repair Main Street. Deficit hawks will cringe when reading this almost as much as I do writing it. My point is that if you are going to borrow money as an individual or governments at least spend it on something that can appreciate in value. Had previous stimulus not been wasted on Wall Street, those funds could have been applied to Main Street and the result would have been lower debt, more demand, more jobs, etc.
The question is of course what can be done now, is it too late for tax rebates? The answer depends on your orientation toward debt, if you steadfastly oppose any debt; you are willing to suffer through austerity measures and lingering joblessness in the America for at least a dozen years. If you think like I do then you will say that a combination of austerity, realignment of some transfer payments currently going to other countries (surprise, not all of it is effective) and a much more aggressive stimulus applied in the form of a tax rebate will shorten the life of this downturn by perhaps 8-10 years.
Consider the demographics of our American population for a moment and realize the real cost of waiting to apply the correct medicine is that a large segment of our graying population who are currently unemployed may never recover enough to remain solvent and support even a modest retirement given the wave of inflation in basic necessities such food and clothing coming soon to America.
We can still stoke the economic fire, but we must stop wasting opportunity and actually hit the target.
