Friday, July 15, 2011

Federal Reserve Chairman Bernanke Says “We don’t know where the economy is going to go.”

Uh, Isn’t It His Job to Know Where the Economy is Going to Go?

Testifying before Congress the Chairman of the Federal Reserve expressed some concern about economic condition in the United States.  Exactly what he would do about things is unclear, because, as the statement above illustrates, the Fed doesn’t know what is going on.

He did indicate that if the weakness continued the Fed was prepared to act. 

He described options including an explicit commitment to maintain its stimulus efforts for a longer period, the resumption of asset purchases and steps that would encourage commercial banks to use the reserves they currently keep on deposit with the central bank.

When asked why he thought any of this would work in the future, when it has been totally ineffective in the past, Mr. Bernanke said something to the effect that even if monetary policy no longer has any effect on the economy, we can still use it.

In an unrelated discussion Mr. Bernanke talked about his encounter with a charging bear last summer when all he had was an empty gun with which to defend himself.  Mr. Bernanke told how he kept firing the gun at the bear and telling the bear that the gun was not empty, until the bear believed him and went off into the woods.  Mr. Bernanke said he believed that the American financial community was no smarter than that bear, and possibly quite a bit dumber.

[Editor’s Note:  The description of events in the last two paragraphs did not happen, they could have, but they did not.]

Mr. Bernanke also

warned, however, that Congress needs to raise the debt ceiling, the maximum amount that the federal government is legally entitled to borrow. Failure to do so, he said, would cause a “huge financial calamity.” And he compared the arguments against an increase to “having a spending spree on your credit card and then refusing to pay the bill.”

prompting Conservatives to say that he was just trying to scare everyone, and prompting the business and financial community to say that he was doing a very good job of it.

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