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Bernanke Op-Ed....Aiding the Economy: What the Fed Did and Why

(source: Board of Governors Federal Reserve System)

Chairman Ben S. Bernanke

Op-ed column for The Washington Post

November 5, 2010

Aiding the Economy: What the Fed Did and Why


Notwithstanding the progress that has been made, when the Fed's monetary policymaking committee--the Federal Open Market Committee (FOMC)--met this week to review the economic situation, we could hardly be satisfied. The Federal Reserve's objectives--its dual mandate, set by Congress--are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills. 








My comments:

Let's go over Ben's list of outcomes.

Stock prices rose - yes, anticipating the buying of financial assets not economic growth

Long-term interest rates fell - same as above, which means selling assets will raise long-term rates

Lower mortgage rates will make housing more affordable - no it makes prices go up which only benefits current owners

Homeowners refinance - no economic impact other than transferring wealth from savers to refinancers

Lower corporate bond rates will encourage investment - they invested in their own stock leveraging the balance sheet, not increased investment

Higher stock prices will boost consumer wealth - only the top 10%

Higher stock prices will increase confidence - in what?

Which can also spur spending - 80% live paycheck to paycheck and higher stock prices don't matter, they need to save

Increased spending will lead to higher income and profits, in a virtuous circle, will further support economic expansion - this is la, la land not backed by any academic research 

In other words, the central bankers thought they knew better than free markets what the price of money should be (interest rates) and manipulated them based on la-la happy thoughts and not research and blew history's greatest credit bubble and they haven't a clue what to do now other than prop it up while the economy begins to roll over.



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