21 July, 2009

Bernanke op-ed in the Wall Street Journal

Ben Bernanke wants to assure people that the Fed isn't just throwing money at the current problems, unaware of the long-term impact on inflation.

My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.

Gee--is everybody confident now? A few observations:

1) The chairman of the Federal Reserve Board is worried enough about confidence that he chooses to make this statement.

2) He does so in a form that allows no questioning or rebuttal.

3) To the extent that he discusses the tools to contract the money supply, it's all pretty much the same as before. We've learned they aren't nearly as all-powerful as he want us to believe.

4) Bernanke says almost nothing about the international dimension--including foreign exchange and the impact on what has been the world's reserve currency.

5) All these promises miss the political dimension altogether. Are we really to believe that those who have been personally helped by recent policies--bailed out banks, investment houses, Fannie Mae, Freddie Mac, etc.--are going to sit by and watch the Fed crank up the pain? The relation of Congress and State governments to the stimulus package is similar to that of an addict to cocaine. The American people will want their freebies, and they won't want to pay for them.

I'm supposed to feel more confident after reading this?

Bernanke Op-ed in WSJ: The Fed’s Exit Strategy - WSJ.com

No comments: