Bernanke: Congress could do more to help economy

Reproduced here for fair use and discussion purposes. My comments in bold.

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   WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke said Thursday that Congress could do more to help the U.S. economy this year (Noooooooo! Don't do any more! We can't stand any more "help!") but instead has focused on reducing the federal deficit. (Notice the either/or equation, as if the two were mutually exclusive. But in fact, if the government would reduce the deficit by cutting government spending, the economy would improve, and it would improve dramatically.)

   During his second appearance before lawmakers this week, Bernanke told the Senate Banking Committee that the Fed’s low interest rate policies have carried “an awful lot of the burden” to drive economic growth. Fed officials would have been very happy to “share that burden” with Congress, he added. (No mention of the fact that the Fed is increasing the money supply by $85 billion a month, which devalues the currency and suppresses the economy.)

   The Fed chairman made the comments only after Sen. Bob Corker, R-Tenn., prodded him to evaluate Congress’s role in supporting the economy after the recession.

   Bernanke said lawmakers have spent too much energy on implementing tax increases and spending cuts when the economy was growing only modestly. Those actions could end up reducing economic growth by 1.5 percentage points this year, he has said. (Of course he has no way of knowing this since we do not have a control subject to compare. More to the point, what spending cuts? There have been no spending cuts. The sequester rolled back $80 billion of spending increase, but no spending has been cut at all.)

   But Bernanke said it was not the Fed’s role to threaten to raise interest rates or take other actions if Congress did not follow more appropriate policies.

   “I don’t think it’s my place or the Federal Reserve’s place to try to force Congress to come to any particular outcome,” Bernanke said. (Whew. I was worried there. A bunch of non-elected quasi-governmental appointments don't have the power to dictate to Congress? So what is he doing there, telling jokes? Picking his nose?)

   Corker said Congress has grown too dependent on the Fed’s efforts to drive growth, instead of taking action to help. Sen. Tom Coburn, R-Okla., was even blunter.

   “We have let you down,” he told Bernanke. “The kindergarten of Congress has let you down by not doing the things to create confidence in the business community.”

   Most of Bernanke’s comments about Fed policy were in line with testimony he gave Wednesday to the House Financial Services Committee. Bernanke said the Fed’s efforts to boost the economy remained tied to the job market’s health and inflation.

   There is no “preset course” for the Fed’s $85 billion-a-month bond buying program, he said. Any change will depend on the economy’s performance. (Here is the money supply increase I mentioned earlier. He thinks it's helping the economy, but it's devaluing the currency. But we need to note that the Fed is the entity that controls the money supply. It directs the Treasury to increase or decrease the amount of currency in circulation. So in this instance, it is directing the Treasury to increase the money supply by $85 billion/mo. 

Note how he phrases it. The Fed is "buying" bonds. Where did it get the money? Well, from the treasury. The Fed tells the treasury to increase the money supply, that increase is delivered to the Fed, which uses the money to purchase bonds. The Fed is buying bonds with currency from the treasury!)

   He also said that the Fed could hold its benchmark short-term interest rate near zero even after unemployment falls below 6.5 percent. One reason the Fed might consider keeping the rate near zero longer is if inflation fails to move closer to the Fed’s 2 percent target rate.

   Another would be if the decline in unemployment is caused by people leaving the workforce. The government counts people as unemployed only if they are actively looking for a job.

   The Fed’s low interest rate policies have spurred a stock market rally and encouraged more borrowing and spending. (The Fed has kept interest rates extremely low since the Bush administration. Suddenly, this practice is spurring the stock market? Really? And who is doing the "borrowing and spending," and why is that good?)

   Bernanke was delivering what could be his final semiannual economic report to Congress. Many senators echoed comments made by House members in praising Bernanke for his service during the 2008 financial crisis and Great Recession. (Whatever. I think his policies have prolonged the downturn and destroyed the wealth of millions of middle class families. I wonder if anyone has asked him about that?)