The author of this article criticizes Ben Bernanke's decision to continue doing as he has done and keep interest rates low. The author explains that this strategy is obviously not working to help the economy and that Bernanke needs to do something different in order to stimulate growth in the economy.
Posted: 12:03 AM, June 21, 2012
I know Ben Bernanke isn’t stupid — so I don’t know why he is acting like a fool.
The Federal Reserve chairman yesterday said — again — that he would extend a program aimed at keeping long-term interest rates low.
Great. How’s it worked so far in helping rev up the US economy?
Someone once described insanity as “doing the same thing over and over again and expecting different results.”
That quote is often attributed to Albert Einstein, although no one is really sure of the authorship. So I apologize to Einstein, or whoever said it, for correcting the observation.
Doing the same thing repeatedly and expecting different results isn’t insanity, it’s stupidity.
The move by Bernanke’s Fed to extended a bond- buying program that it calls Operation Twist to the end of 2012 is just such a repetitive move.
This program is simple: sell and roll over shorter-term securities, and use the cash to buy long-term government bonds.
The only problem is that neither Twist, which began last September, nor the incredibly dangerous money-printing operation known by the innocent name Quantitative Easing have achieved much of anything.
People and companies are simply too afraid to borrow. And banks don’t want to lend.
So Bernanke can keep interest rates as low as he wants and the only real result is that savers will continue to be denied respectable yields that might lead them to spend more.
Put another way, while the operation may be a success in appeasing Wall Street, the patient — the US economy — is slowly dying.
In Bernanke’s defense, he is in a very difficult position. Despite all the nonsense in the press about how many tools he still has in his toolbox (the media like to talk in clichés so they don’t have to explain anything), the truth is that Bernanke is stumped and out of ideas.
It may be that, as Bernanke repeatedly says, he is ready to act. But it has already reached the final act.
And nothing has worked.
Four years after the beginning of the Great Recession — another catchphrase that is supposed to make people proudly feel as if they are part of some important historic event — the economy is still growing at a measly 2 percent a year.
Unemployment is at a lofty 8.2 percent. And it’s only considered “good” if you do not count people who want to work but who have given up looking out of frustration. Real unemployment is easily twice 8.2 percent.
Worse news, the Fed reported a couple weeks ago that Americans lost 40 percent of their wealth over the past few years. And that decline would be considerably higher if the Fed’s monetary policy hadn’t been successful (its only success) in propping stock prices up at unnaturally high levels.
Guaranteed, in the next few weeks you’ll hear increased chatter about how the US is heading back into a recession.
The Republicans will blame the Democrats and the Fed. The Democrats will blame the situation in Europe.
Both sides should shut up and make sure taxes don’t increase Jan. 1, as they are scheduled to do.
What to do? Once again, here is my full plan for the economy, in a nutshell.
One, change the rules to allow retirement plans to invest in real estate. This way people who can actually afford to buy a house will be allowed to do so.
An improvement in housing will spill over into construction and many other industries.
Two, give a tax incentive so US companies will repatriate profits they earned abroad. In exchange, the companies will have to sign an airtight contract to use some of those billions in foreign profits to create US jobs.
Last, Washington needs to make sure energy prices keep dropping. That means Wall Street speculation in commodities will have to be curtailed by regulators.
All these issues would have to be taken on by Congress and by the White House — either while President Obama is still in office or after he loses re-election.
Now that Ben’s toolbox is empty, maybe our elected officials will start acting responsibly.
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