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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 22, 2011 at 10:05 AM

Dead in the water with Chairman Ben

Just sit right back

And you’ll hear a tale

A tale of a fateful trip

That started in the stormy times

With Ben steering the ship…

Today’s statement from the Federal Reserve’s policy-making Federal Open Market Committee contained a couple of laughers. “The economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected.” Also, “recent labor market indicators have been weaker than anticipated.” And, “Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated; however, the Committee expects the pace of recovery to pick up over coming quarters…”

The headline for all this at the Wall Street Journal is, “Fed on hold amid slow recovery.” The FOMC signaled it would do no more than keep interest rates low and complete the $600 billion QE2. Barring another panic, there will be no QE3. So the Fed has shot its wad and failed in both its mandates.

To be fair to Bernanke, he is navigating a business cycle the likes of which we haven’t seen since the Great Depression, and in some ways worse. He lacks a partner such as Franklin Roosevelt, who was willing to experiment and improvise to at least get people back to work. And the American economy, unlike in the Depression, no longer is the world’s strongest with vast unused capacity.

The Fed, like both the Bush and Obama administration, chose to save the banks. Its quantitative easing boosted stocks and the casino games of the Wall Street playerz, but also inflation. Jobs and small-business lending, not so much. Bernanke learned the lesson Milton Friedman and Anna Schwartz illuminated, about how the Depression was worsened by deflation and a tight-fisted Fed. But one can’t escape the sense that Bernanke, like the French general staff circa 1940, was fully prepared for the last war.

But back to the FOMC statements above. On what evidence, aside from corporate profits, does the committee claim the recovery “is continuing at a moderate pace,” much less that the labor market will somehow magically heal? Perhaps in the long run. But, as Lord Keynes said, in the long run we’re all dead. So we’re becalmed with Chairman Ben, with the Fed out of tools and fuel. Or maybe shipwrecked.

…The ship set ground

On the shore of this uncharted desert isle

With the President

The Chairman, too

The millionaire (left for Davos)

The unemployed, and the rest

Here on ‘recovery’ isle

Today’s Econ Haiku:

How can Amazon

Muscle its way with the states?

Just because it can

Comments | More in Bailout, Federal Reserve, Great Recession, Recovery


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