Bernanke Fails to Build Public Support for More Economic Aid from Washington
Posted by Michael A. Kamperman on July 21, 2009
Today, Ben Bernanke felt compelled to answer his inflation hawk critics rather than ignore them. He sought to assure everyone that the Fed has an exit strategy from its support for the economy and will pull the trigger when the time is right. Astonishingly, he did all of this while telling Congress that the economy remains weak, the risks remain to the downside, and unemployment should continue to rise. What Bernanke has done is box the Fed into a neutral policy of no more action one way or the other for the time being. He is content to wait and watch to see if the policies enacted so far are enough to stabilize and revive the economy. The Obama Administration has adopted the same watch and wait strategy. The question going forward is what are they waiting for? Since both the Fed and the Whitehouse have conceded that unemployment will reach 10%, will we see no more actions to aid the economy until unemployment reaches 11%? 12%? 13%?
Ben Bernanke, renowned scholar of the 1930’s great depression, missed a golden opportunity to confront his critics and declare that more needs to be done to revive the economy and that he is willing to adopt whatever policy is necessary to restore sustainable economic growth in America. He should have built public support for more action, not less. Instead, by tipping his hat to the need for an exit strategy he has made it much more difficult for the Fed or the Whitehouse to come forward with the next plan to revive the economy. Those that wonder if such a plan will be necessary should consider the plight of the states. The Financial Times is reporting the combined 2010 fiscal budget gap for the states that must be closed by spending cuts or tax increases amounts to $143 billion. This includes the extra money the states have received from Washington in the stimulus bill to pay for some of the state’s unemployment and Medicaid costs. The saying that as California goes so goes the country is economically ringing true right now.
The steps necessary to revive the economy will require significant public support to before they can be implemented. Mr. Bernanke is killing support for further action. He started talking about, and coined the term, “green shoots” this spring. Now this summer he blinks in the face of bond vigilante and China criticism and talks about potential exit strategies. While Chairman Bernanke has led the Fed to take unprecedented action in the post World War II era, the actions they have taken have been too little and too late. Now, he is compounding the problem by not pounding the table and cramming quantitative easing down the bond vigilante’s throats. Washington needs to tell the public the truth, that much more needs to be done or the economy will continue to slide. The Ostrich strategy Washington has adopted is no strategy at all.
