Welcome login | signup
Language en es fr

Forum Post: Ben & willard

Posted 11 years ago on Sept. 17, 2012, 9:17 a.m. EST by bensdad (8977)
This content is user submitted and not an official statement

Ben Bernanke By PAUL KRUGMAN Last week Ben Bernanke, the Federal Reserve chairman, announced a change in his institution’s recession-fighting strategies. In so doing he seemed to be responding to the arguments of critics who have said the Fed can and should be doing more. And Republicans went wild. Fred R. Conrad/The New York Times

Paul Krugman Now, many people on the right have long been obsessed with the notion that we’ll be facing runaway inflation any day now. The surprise was how readily Mitt Romney joined in the craziness.

So what did Mr. Bernanke announce, and why?

The Fed normally responds to a weak economy by buying short-term U.S. government debt from banks. This adds to bank reserves; the banks go out and lend more; and the economy perks up.

Unfortunately, the scale of the financial crisis, which left behind a huge overhang of consumer debt, depressed the economy so severely that the usual channels of monetary policy don’t work. The Fed can bulk up bank reserves, but the banks have little incentive to lend the money out, because short-term interest rates are near zero. So the reserves just sit there.

The Fed’s response to this problem has been “quantitative easing,” a confusing term for buying assets other than Treasury bills, such as long-term U.S. debt. The hope has been that such purchases will drive down the cost of borrowing, and boost the economy even though conventional monetary policy has reached its limit.

Sure enough, last week’s Fed announcement included another round of quantitative easing, this time involving mortgage-backed securities. The big news, however, was the Fed’s declaration that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.” In plain English, the Fed is more or less promising that it won’t start raising interest rates as soon as the economy looks better, that it will hold off until the economy is actually booming and (perhaps) until inflation has gone significantly higher.

The idea here is that by indicating its willingness to let the economy rip for a while, the Fed can encourage more private-sector spending right away. Potential home buyers will be encouraged by the prospect of moderately higher inflation that will make their debt easier to repay; corporations will be encouraged by the prospect of higher future sales; stocks will rise, increasing wealth, and the dollar will fall, making U.S. exports more competitive.

This is very much the kind of action Fed critics have advocated — and that Mr. Bernanke himself used to advocate before he became Fed chairman. True, it’s a lot less explicit than the critics would have liked. But it’s still a welcome move, although far from being a panacea for the economy’s troubles (a point Mr. Bernanke himself emphasized).

And Republicans, as I said, have gone wild, with Mr. Romney joining in the craziness. His campaign issued a news release denouncing the Fed’s move as giving the economy an “artificial” boost — he later described it as a “sugar high” — and declaring that “we should be creating wealth, not printing dollars.”

Mr. Romney’s language echoed that of the “liquidationists” of the 1930s, who argued against doing anything to mitigate the Great Depression. Until recently, the verdict on liquidationism seemed clear: it has been rejected and ridiculed not just by liberals and Keynesians but by conservatives too, including none other than Milton Friedman. “Aggressive monetary policy can reduce the depth of a recession,” declared the George W. Bush administration in its 2004 Economic Report of the President. And the author of that report, Harvard’s N. Gregory Mankiw, has actually advocated a much more aggressive Fed policy than the one announced last week.

Now Mr. Mankiw is allegedly a Romney adviser — but the candidate’s position on economic policy is evidently being dictated by extremists who warn that any effort to fight this slump will turn us into Zimbabwe, Zimbabwe I tell you.

Oh, and what about Mr. Romney’s ideas for “creating wealth”? The Romney economic “plan” offers no specifics about what he would actually do. The thrust of it, however, is that what America needs is less environmental protection and lower taxes on the wealthy. Surprise!

Indeed, as Mike Konczal of the Roosevelt Institute points out, the Romney plan of 2012 is almost identical — and with the same turns of phrase — to John McCain’s plan in 2008, not to mention the plans laid out by George W. Bush in 2004 and 2006. The situation changes, but the song remains the same.

So last week we learned that Ben Bernanke is willing to listen to sensible critics and change course. But we also learned that on economic policy, as on foreign policy, Mitt Romney has abandoned any pose of moderation and taken up residence in the right’s intellectual fever swamps.



Read the Rules
[-] 2 points by BradB (2693) from Washington, DC 11 years ago

WOW!!! .... come on guy's ..... don't you all understand what is happening ?

We've had two entirely different things take place that affects our economy.... one... being the organized criminal ripoff orchestrated by much of wallst...(which is a bad thing for everyone) ....

and the other being the result of the 3rd world industrialization that has taken place .... (which is currently a bad thing for our economy.... but a Great thing for the 3rd world economies) ....

they are two isolated & completely different problems....

as.... we add more & more people (worldwide) into the monetary game... we HAVE to ... provide them with some sort of capital (money)... so they can be part of the game.... no ?

the greedy fucking ass extreme right ... are fighting this... because they think that that money will come from their greedy pockets ....

the dumb ass extreme left ... are fighting it ... because they are too scared to make a stand ...

it is the moderates ... the majority btw... that see the reality .... and believe it or not ... Obama ... Is a moderate .... and understands what's happening ....

while the do nothing congress has done nothing.... the Administration has been busy....the Fed has been completely revamped.... the Treasury & SEC.... has been challenged (and ordered) to do their fucking job... (control the banks & wallst) ... (I'm not sure that the SEC is doing it yet???)....

anyway.... as we add more people into the game.... We HAVE to .... add more money into the game...

we can do that by taking money from the rich... or we can print more.... no other choices....

QE3 (for the middle class)... IS a good move... but... it is not a final answer.... regardless of how much money we put into the system ....We STILL have the problem of creating enough jobs ... so everyone can play ....

at some point in the next 50 years ... we WILL have to socialize more & more of the economy.... or learn to share.....

a Social Reserve Bank ... will immediately help expand economic opportunities.... BUT that is just a beginning....

we NEED to expand & change what is considered wealth...

Paul Krugman... is a very sharp guy... btw...

[-] 1 points by notaneoliberal (2269) 11 years ago

I can agree with you to a point. There are two entirely different things at play here. Monetary solutions do not, and cannot address "structural issues". The lack of jobs is, which you describe as the industrialization of the third world, is a structural issue. I do take issue with the statement; Bad for us but great for them. It is an unsustainable system. You have had a system where Chinese slave labor jobs have displaced good paying US manufacturing jobs, The very jobs that provided the consumer base for those Chinese made goods. For a while, it was continued by borrowing, but now it's all crashing. http://www.forbes.com/sites/gordonchang/2012/08/26/omg-chinas-manufacturing-is-crashing/

[-] 1 points by BradB (2693) from Washington, DC 11 years ago

;) just growing pains.... same thing happened when we re-industrialized Japan ...

also for the record... as we use greed to expand industry.... as always ...for a short term.... yes... the workers are abused ... but soon they rise up and take control (or start new) of the industries once they learn how....

anyway.... we are in a new age.... we need to realize how to allow everyone a piece of the pie... for... soon robots & technology will replace every worker...

maybe we can get a 5hr work week .... I'm for that

[-] 1 points by notaneoliberal (2269) 11 years ago

There are some parallels with post war Japan. There are also some significant differences. Coming out of ww2, the US had a virtual monopoly on manufacturing. It took several decades before Japan presented any serious challenge to US industry. Another big difference. The US occupation forces encouraged the formation of unions. Pro union laws were enacted. This meant there was less of a wage disparity between Japan and the US. Or to put it another way, this war before neoliberalism reared its' ugly head.. Ironically, the rate of labor union participation is now (as of 2010) higher in Japan,about 18%, than in the US, which was 11.4% in 2010. The decline in US manufacturing has proceeded at an accelerating pace for 30-40 years. I don't know that I would call that "a short term" As for the technological job loss issue, that is a very real problem, but it would tend to make it all the more important to keep the jobs that remain. I don't think it will ever replace "every worker", but it may replace many. That may depend a lot on the availability of energy supplies.

[-] 1 points by yobstreet (-575) 11 years ago

Let me ask you a really stupid question - what happens when the government in an effort to encourage borrowing begins to offer negative interest?

What happens when the banks must offer an incentive - actually pay us - to take that money off their hands? How much will that borrowed money be worth then? Well, let me to tell you - it'll be worth less than the incentive.

Everybody knows this... everybody.

Americans are purchasing fewer homes, financing fewer cars, discarding their credit cards... and if we're not busy doing that, then we're busy defaulting.

Everybody knows this... everybody.

QE3 is definitely not going to banks to ease lending.

[-] 2 points by bensdad (8977) 11 years ago

FYI- the article was written by an amateur economist.
Ever heard of him?
I would suggest a different twist
What if the FED money going to banks - must be loaned out?

[-] 1 points by yobstreet (-575) 11 years ago

You're joking right?

[-] 1 points by shoozTroll (17632) 11 years ago

Yep, You're correct. It's a really stupid question.

Let me know when they actually do this and I will get back to you with a really stupid answer...........:)

[-] 0 points by podman73 (-652) 11 years ago

Woooo man easy with the common sense and logic, that kind of talk will get ya labeled a radical. Lol luv common sense!

[-] 2 points by yobstreet (-575) 11 years ago

Quantitative easing as presented is absurd; what's worse is that it is all charged to the tax payer.

[-] -1 points by hchc (3297) from Tampa, FL 11 years ago

This is one of dumbest articles I have seen in a while.

[-] 1 points by NVPHIL (664) 11 years ago

I'm not an economic expert but wouldn't inflation push the people struggling to get by over the edge.

[-] -1 points by GNAT (150) 11 years ago

The idea here is that by indicating its willingness to let the economy rip for a while, the Fed can encourage more private-sector spending right away.

It's sad to hear this over and over with no explanation on how it will promotes private sector spending. Probably because it doesn't hold any water and details tend to expose such things.

I'm no longer a fan of Paul Krugman. There is no correlation between Fed printing, bank welfare, and increased demand. You fucked up on this one Paul.