Ben Bernanke delivered the Fed Chariman's annual policy speech at a resort in Jackson Hole, Wyominng today. While the markets had seemed to hope earlier this week that Bernanke would announce some pro-active measures to kick-start the sputtering economy, Bernanke instead announced that the Fed would take no such measures, and that ultimately, he believes they won't be needed. Rather Bernanke insisted that that the Fed will be prepared to act if necessary.
Bernanke's assessment of the economy is terrifying for two reasons: First, in what sounds an awful lot like the line that John McCain drew so much flack for in the heart of the financial meltdown in 2008, Bernanke believes the fundamentals of the economy are still strong. Second, he believes that the key to recovery is government legislators—the same ones who made such a mess of the debt limit negotiation—responsibly implementing good policy.
"The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years," Bernanke said. As LA Times notes, in Bernanke's view "for all of [the economy's] current problems – notably long-term joblessness and the still-wounded housing market — it ha[s] not lost its competitive advantages that would ensure a return to long-term growth and prosperity."
As much as one would hope Bernanke is right, to anyone who's actually had a real-world job or been trying to find one over the last few years this seems like a painfully naive failure to read the writing on the wall. Something has changed, and it sure feels fundamental.
"Financial markets and institutions have already made considerable progress toward normalization," he said. Is he serious? The market shocks in recent weeks were historically unprecedented for consecutive-day volatility. Risk of renewed recession is on the rise. How is this progress toward normalization? Economists like Paul Krugman and Nourial Roubini seem to have a very different view of our current "normalization."
Even worse than this apparent naivete is Bernanke's throwing the hot potato of economic recovery back to government legislators.
Bernanke seems to suggest that the Fed's monetary policy-making abilities can only do so much, and that responsible fiscal legislation in Congress is where the real key to recovery lies:
Finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions. The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.
Again, is he serious? Did he check in with the news any time between Mid-May and August 2nd? The only thing deteriorating faster than consumer confidence is legislators' willingness to work together toward productive solutions. As the political climate grows ever more partisan and bitter and focussed only making the other guy look as bad as possible before the next election, I would rather see the Fed place its hopes for economic recovery almost anywhere than on Congress.
A naively optimistic view of our economic fundamentals, plus a faith that Congress will do a better job of enacting policy in the future. That's Bernanke's speech? If you ask us, it sounds like we're screwed.
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