I came to the same conclusion:
Bernanke’s Perry Problem, by Paul Krugman, Commentary, NY Times: As I write this, investors around the world are anxiously awaiting Ben Bernanke’s speech at the annual Fed gathering at Jackson Hole, Wyo. They want to know whether Mr. Bernanke ... will unveil new policies that might lift the U.S. economy out of what is looking more and more like a quasi-permanent state of depressed demand and high unemployment.
But I’ll be shocked if Mr. Bernanke proposes anything significant... Why...? In two words: Rick Perry. ... 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.
To see what I’m talking about, let’s ask what policies the Fed actually should be pursuing right now. ... Well, in 2000 ... Ben Bernanke offered a number of proposals for policy at the “zero lower bound.” True, the paper was focused on policy in Japan... But America is now very much in a Japan-type economic trap, only more acute. ...
Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan’s economy moving with a variety of unconventional policies...: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, “setting a target in the 3-4% range for inflation, to be maintained for a number of years,” which would encourage borrowing and discourage people from hoarding cash; and “an attempt to achieve substantial depreciation of the yen”...
So why isn’t the Fed pursuing the agenda its own chairman once recommended for Japan?
Part of the answer is internal dissension..., with three inflation hawks on the committee... The larger answer, however, is outside political pressure. Last year, the Fed actually did institute a policy of buying long-term debt, generally known as “quantitative easing”... But it faced a political backlash out of all proportion...
Now just imagine the reaction if the Fed were to act on the other and arguably more important parts of that Bernanke 2000 agenda, targeting a higher rate of inflation and welcoming a weaker dollar. With prominent Republicans like Representative Paul Ryan already denouncing policies that allegedly “debase the dollar,” a political firestorm would be guaranteed.
So now you see why I don’t expect any substantive policy announcements at Jackson Hole. ... In effect, it has been politically intimidated into standing by while the economy stagnates. And that’s a very, very bad thing.
Political opposition has already crippled fiscal policy; instead of helping to create jobs, the federal government is pulling back, acting as a drag on output and employment.
With the Fed also intimidated into inaction, it’s hard to see any end to the ongoing economic disaster.
Posted by Mark Thoma on Friday, August 26, 2011 at 06:48 AM in Economics, Monetary Policy, Politics |