“There is uncertainty about whether there is a durable recovery.”
— Ben Bernanke
There, the chairman of the Federal Reserve has finally caught up with the reality-based community. Yet in his testimony before Congress today, Bernanke said the central bank wasn’t yet ready to begin a QE3, a follow-up to the $600 billion in “quantitative easing” that wrapped up last month. Still, “we have to keep all options on the table.”
That table is about as big as one of those one-person round jobbies at a crowded Starbucks. The Fed has flooded the market with cheap credit and dollars, bought up buckets of Treasuries, yet real unemployment is above 16 percent and what recovery there was is sputtering toward a double-dip. QE2 might have definitively stopped any chance of a deflationary spiral, the mistake the Depression Fed made — Bernanke promised Milton Friedman, Nobel scholar of that blunder, that the central bank wouldn’t repeat it.
But these are different times and it also had unintended consequences: Inflation in China and elsewhere, mild enough price rises as to hurt American households already living on the edge and failure in its primary mission of boosting recovery. It went into speculation on Wall Street and in Chinese real estate. But Bernanke, in or out of his helicopter, can’t make American corporations hire Americans or big banks lend to productive enterprises.
Ironically, if not for the manufactured “federal debt crisis,” the Fed’s action would have been a good time for a real, job-focused stimulus. But such was not to be. Instead, Washington is paralyzed over raising a debt ceiling that has been repeatedly raised in the past. Bernanke today warned that failure to do so would “throw the financial system into enormous disarray and have major impacts on the global economy.” Translation: Head for the bomb shelter. He also warned that deep spending cuts would derail the expansion.
But the central bank itself is out of ammo. As Alan Greenspan once said, “You can’t push a string.”
Today’s Econ Haiku:
Mastro flew the coop
That’s quite a development
Sam Spade, we need you