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Friday, October 28, 2016

How The Political Climate Is Crippling The Fed

Despite the predictions of investors and traders, Chairman Ben Bernanke announced in a speech Friday that he would not be proposing new steps by the Federal Reserve to help the economy. The reasons behind his inaction might be more political than monetary.

Many people worry that the United States is on the brink of another recession — a fear compounded by slowing consumer spending, falling home prices, large debt burdens, and uncertainty in Europe. Investors had hoped that the Fed would take decisive action to help the economy; but instead of offering a new stimulus plan, Bernanke criticized Congress’ actions in the debt ceiling debacle and said fiscal authorities should do more to help the economy in the short term. The stock market temporarily dropped with the news that the Fed would, for the time being, not be enacting new measures to help the economy.

Contrary to hopeful investors, Paul Krugman had predicted in an Aug. 25 New York Times op-ed that Bernanke would not offer a dramatic stimulus plan during the annual Fed gathering at Jackson Hole, Wyo. There are many logical steps the Fed could take to help the economy, but Bernanke is instead choosing to not take action. The interest rates the Fed would usually target are already near zero and cannot be cut more; however, Krugman writes that Bernanke could take bolder actions, including purchasing long-term government debt and seeking moderate inflation to encourage borrowing, that would stimulate the economy.

But with presidential hopefuls saying that issuing more money would be “almost treasonous,” as Rick Perry said in Iowa earlier this month, the Fed chairman might not be as apt to take such measures. According to Krugman, the Fed is “intimidated into inaction” by the political climate.

Krugman wrote, “I’m using Mr. Perry — who has famously threatened Mr. Bernanke with dire personal consequences if he pursues expansionary monetary policy before the 2012 election — as a symbol of the political intimidation that is killing our last remaining hope for economic recovery.”

Perry’s comments created a stir in the media, but the underlying sentiment isn’t unique to bombastic presidential hopefuls. According to Rick Wilson, a Republican strategist and the founder of Intrepid Media, the Federal Reserve has played a far too significant role in the economy already.

He said that he thinks average Americans would be more opposed to the Fed’s actions if they understood it better. “They’re uncomfortable with its role in the economy, but they don’t understand it,” he said. Wilson accused the Fed of “playing a lot of games to keep the banks afloat” instead of letting market forces sort out the economy.

According to Wilson, the Fed’s meddling has nonetheless failed to reach the “mythical trigger point” where the economy is in ideal shape. “If we can’t get there from spending well over a trillion dollars in four years, we’ve got to reassess that model.”

Fed supporters counter that Bernanke’s decisions have helped the economy so far. In last year’s speech, he proposed a Treasury-buying plan to help lower long-term rates, which, when enacted, lifted stock prices.

With recent news that the economy grew at an annual rate of just 1 percent this spring, many argue that the Fed should take greater action now instead of caving to political pressure from Perry and other Republicans. The speech did not deliver immediate help, despite the fact that Bernanke said that in the September meeting, the Fed “is prepared to employ its tools as appropriate to promote a stronger economic recovery.”

That might be true, but it is also possible that the Fed will continue to be paralyzed by the hostile political climate.

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Copyright 2011 The National Memo
  • HerbEash

    Our Republican and Democratic Politician babies need their Mommies. Stop the ruckus and fund those in need and take a little from those with too much because most of them made their money on greed or hand overs from their parents! Please tell those rich republicans that if they are going to go by the bible then start helping those in need just like Jesus did other wise pipe up and don’t ask God because your doing it for yourself!

  • ScottMontgomery

    Oxy moron…republican for small government. Ok, let’s start by stopping the wars, & bring the troops home. Second, let’s see what we spend on foriegn soil. SPREADING AMERICAN AROGANCY with foriegn aid has got to stop. Spending money building infra structure creates jobs. Buy american, put up tarrifs, give up free markets & take care of our own. Bring back ISOLATIONISM. Globalization isn’t working anymore. Forget about the other countries & let the United Nations do it’s work. I would like to see the dirtly little secret about how much we spend on spreading american companies in order to create jobs overseas.

  • Newborn

    Many countries are complaining that U.S. is spending too much in «offence» policies with costly thousands military bases in more than fifty countries. This is an expensive unnecessary world domination. Cutting this and better planned domestic income (taxes) and spending (infrastructure, roads, trains, schooling and workforce training) will put U.S. in the good track.

  • BUCK_E

    Even u guys leaving the comments remind me of a)bleeding hearts or b)politicians, or both a&b. Do you really need to see videos and news reports every day of the attacks against our our country and it’s people to remind you why our military is doing what it does? And yet never mention a word about how much taxpayer money is spent EVERY DAY to support illegal immigrants, feed illegal immigrants, educate illegal immigrants, jail illegal immigrants, give due process in the courts for illegal immigrants, ect. That amount alone would be enough to get this country well on it’s way to recovery but that’s a subject our politicians will not even think about mentioning because it would seem that getting that illegal’s vote (even though they LEGALLY can’t vote) is more important than doing whats best for THIS country. That’s all Courtesy of our federal government for years acting negligently when it comes to policing our borders, and enforcing the laws the people of this country have intrusted them with?
    also,No!, don’t let our military suffer from not being supplied the best we can offer them for the job that MUST be done to keep our people free from terrorist threats from outside our borders. BUT, make it understood that if a foreign government allows this muck to exist within their borders and this “muck” becomes a threat to the people in this (MY) country they leave them self’s open to attack to rid this country of said threat WITHOUT us being expected to rebuild after were done. The bombs it takes cost us enough mony as it is without repairing the damage they leave behind. IE: new policy…if your government offers protection to terrorists then that makes them too a terrorist threat in the eyes of this country which we will destroy, and NOT rebuild. Police your people and no one else will have to do it for you!!

  • kurt.lorentzen

    With all dure respect to Buck E, entitlements for illegal immigrants are a drop in the bucket and would NOT make a significant dent in the deficit spending. But Bernanke isn’t failing to purchase debt because of the political climate, He’s failing to do so becaus he’s looked at the books and made the decision that the FED can’t afford it!