Bernanke speaks from the right of where his critics are

PAUL KRUGMAN titles his editiorial "The Intimidated Fed,' and goes on to write:
Instead of addressing the dismal unemployment picture during Wednesday’s press conference, Ben Bernanke bent to the inflationistas.

Like always, the readers know best:

Bill Pieper

Why should the Fed be any different than the rest of Washington? The Fed is after all, like our Congress and courts, owned by Wall Street - in the Fed's case this is literal.

With real unemployment rates at depression levels, one would think that a society that labels itself democratic would give this urgent crisis top priority. Instead we have Congress in a tizzy over debit card fees or steroid use among millionaire athletes and a mainstream press talking about manufactured controversies. Meanwhile the middle class is being destroyed and an entire generation of young workers are looking at a future of low paying service jobs with no benefits, no job security and no hope of anything better.

No one in positions of leadership in any of society's institutions are actually providing valuable leadership or even a vision of how things might be different. Big business, government, political organizations, academia, religions, etc. have all failed the American people, and failed miserably. There are plenty of solid and proven ideas and policies that could change this, change them quickly and dramatically. There are plenty of unmet needs in the economy and society that can only be adequately addressed through some sort of collective action since the sacrosanct free market does not even recognize them, yet decade after decade, these needs remain unfulfilled. We have huge looming questions about how we are to proceed in an economy completely dependent of hostile foreign sources of oil, the market again, is failing to adequate address this in a timely fashion. But even acknowledging these problems would force our "leaders" to break out of the ideological prisons they have created and see the world as it truly is, not how their dogma (or lobbyists) tell them it is.

I think the only way at this point to overcome the empathy gap that exists between vulnerable, beleaguered working and unemployed Americans and their failed leadership is for those Americans who are working and care about their fellow Americans, to join the unemployed on a specified day, in other words, a national general strike. Of course, Americans don't do strikes. Strikes and civil disobedience is something for those lazy Europeans and union "thugs", but not hard working Americans. Enjoying lives with much more meaning, fulfillment, satisfying living arrangements and better quality of living is just too unAmerican.

After generations of indoctrination, the American sheeple have become unquestioning, uncomplaining, blinkered, frightened, obedient workers and loyal consumers. They no longer deserve or even want to be called citizens as citizenship requires effort and vigilance. Nonetheless, Americans need to understand that there will be no help whatsoever coming from Washington, not from the Fed, Congress, the White House or the courts. If this sad fact is not clear to them by now, they will never learn. If Americans want to change this system they will have to self-organize and do something dramatic, something unAmerican. The only thing Americans have that the oligarchy cares about is their labor and their consumer dollar. If Americans withhold these in a coordinated fashion, perhaps the plutocrats, their loyal servants and enablers in DC will actually listen. Sadly though, I think things will have to get much worse before Americans are motivated to change their sorry state.
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Karen Garcia
New Paltz, NY

The Bernanke press conference was just more political theater, and pretty dull theater at that. I tuned in to watch it on C-Span, partly to escape the coverage of royal nuptials and royal pains (Trump). I was kind of hoping a "Rolling Stone" magazine reporter in blue jeans would be there in the sea of suits to jump up and ask Bernanke about the Real Housewives of Wall Street, and their no-interest Fed loans. I wanted to know about those Fed loans to Bahrain and Mexico that were only uncovered through the efforts of Senator Bernie Sanders and an Act of Congress. I was waiting for somebody - anybody - to really challenge the guy on jobs. Like any politico, Bernanke "regrets" the unemployment picture. QE 2 was meant to stimulate businesses to provide more jobs, but putting pressure on corporations is not in the Fed's job description. It's doesn't seem to be in the job description of anybody in the Beltway, come to think of it.

Meanwhile, real unemployment is somewhere between 20 and 25 percent -- close to Great Depression levels. As Paul Krugman states, many people -- the 99ers -- just aren't counted in the statistics any more. Longterm jobless people give up hope and lose skills. It is estimated that only nine percent of those still seeking work after one year will ever find a job. And to add insult to injury, the right-wing Republicans demonize these people for being in need and are striving mightily to shred what is still left of our social safety net.

When you have a government that cares more about the confidence of the markets and the value of the almighty dollar than it does about human beings, you have a government in serious decline. Let's hope the 99ers can gather enough momentum to become a force to be reckoned with. The warm weather is here, and we're long past due for another Bonus Veterans-style tent city of protesters in full view of The White House.

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Roger Strassburg
Oberpframmern, Germany

I think President Obama deserves much of the blame for this.

When Obama entered office, many hoped that he'd be a new FDR and that he'd create a new New Deal. The country saw where the speculative, deregulated free-wheeling of the past three decades had gotten us. The country was ready for sweeping change, and it was Obama who had the opportunity to bring about that change. He had the majorities he needed to do it, and he possessed the rhetorical ability to rally public support for it. He had everything on his side.

So what did he do? He tried to be nice to his enemies - people who would oppose Obama even if he were offering them universal prosperity, world peace and a pony. He offered them compromises before they even asked for them. He did too little, because his opponents were accusing him of doing too much - too much being defined as anything that involved any attempt of the government to boost the economy whatsoever.

And what was the result? The Republicans won the midterm elections, and now Obama doesn't have the majorities he needs in order to what needs to be done. Now the onus is on the Fed, but because of the Republican surge in the midterm elections, the bullies from the right have more power to intimidate the Fed, as well.

Obama lost for losing, and the danger is that he'll lose even more in 2012.

And then we'll all lose.
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Winning Progressive
Chicago, IL

And it is not just the 14 million unemployed that are being harmed by the elite conservative obsession with imaginary inflation.

It is also the undermployed, which when added with the unemployed, totals more than 15% of Americans.

And it is the people who are so frustrated that they have given up looking for work. For example, the employment to population ratio remains stuck at less than 59%, which is far below the 1999 peak of nearly 65%, and the lowest since just after the recession of the early 1980s. In addition, while with the early 1980s recession the employment to population ratio quickly escalated after the recession ended, now the ratio is remaining under 59% more than six months after the official end of the Bush Recession.

And it is also the people who have managed to find jobs again, but who are being paid less and receiving fewer benefits for their labor because the jobs being created are lower quality, on average, than those that were lost.

And what are we getting in exchange for all of the economic pain caused by the continuing effects of the Bush Recession? Well, conservatives are getting protection from the mythical inflation monster that is apparently hiding under their beds. The rest of us, however, are getting nothing except the fear of not being able to find jobs or of losing the ones some of us are lucky enough to have.


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Marie Burns
Fort Myers, Florida

One thing Mr. Bernanke doesn't seem to be very good at is figuring which way the wind is blowing. While I will warrant that Bernanke's is a quasi-political job, even though we like to pretend the Fed is an "independent" body (and what a big joke that is!), he should have read someplace -- since virtually every single newspaper and news magazine in the U.S. has covered the story -- that jobs are the American people's biggest worry, even if they aren't the biggest worry of Mr. Bernanke's friends in Washington & on Wall Street.

That is, the political wind is blowing What Washington and Wall Street Want out the door. People want jobs, they want the social safety net we have enjoyed (such as it is) for decades, and they want the federal and state governments to have sound fiscal policies, even if they have no earthly idea what a sound fiscal policy would be. Bernanke should be reminded that his real clients are the American people, not the big banks, and not Ron Paul.

Ron Paul may be chair of the House subcommittee on monetary policy, but not even Ron Paul takes his own positions seriously. He really doesn't think, for instance, that he's going to be moving us to a gold standard any time soon, even though for reasons beyond reason he thinks that would be a great idea. And Bernanke, who is a trained economist, instead of bending to real or imagined pressure from Ron Paul or others in the Congress, should be giving Ron Paul and his crackpot ideas what-for, in a nice, polite manner, of course.

Bernanke's job, in effect, is not to bend to the will of Congress or the President, but to counteract the dumb stuff the Congress and Executive do. He also should be trying to teach elected officials what makes sense since they surely can't figure it out on their own. Ben Bernanke is not doing his job. Period. If we could, we the people would fire him.

The Constant Weader at www.RealityChex.com
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Let's see if, as a historian, I have this right. Beginning in the 1970s the Western industrial world was stuck with stagflation, meaning high inflation and high unemployment. Margaret Thatcher came along to solve the problem. She got inflation down but unemployment shot up. So is the current US solution to our economic crisis, as pursued by Mr. Bernanke at the Fed, a policy of keeping inflation low--very low according to some economic calculations, despite hikes in energy and food prices that are basic problems for ordinary Americans, while accepting what appears to be a long term, structurally high unemployment or underemployment rate? Are we to experience the lengthy high unemployment rates of 10+% for the foreseeable future--a kind of Thatcherism bis? Europe experienced these levels for over two decades but with social safety nets that ameliorated the difficulties, a safety net that we do not have and, such as it is, will be even further reduced of the deficit hawks prevail in Washington and the state capitols.
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David Gutting
St. Louis

The history of this country has been a long, drawn out battle between the proponents of tight money (usually the people who have money) and the proponents of easy money (usually the people who don't have it). In this latest chapter, the hard money people--who are the hard core adherents to free market orthodoxy--can't face up to the reality that they've been pretty much wrong about everything they have said, done, or predicted about this economy in a very long time.

But, here's the thing: these folks own pretty much anything that matters. They own the banks, they own the corporations, they own the media that's operated by those corporations, and--most important of all--they own the Congress and the Administration.

So yes, the Fed is intimidated. They can't stand up to their bosses.
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New York

What are is Congress waiting for? There are no miracles here. People need jobs to pay their bills, to buy food, to live. Unless we go back to bartering and find a way to survive without using money we all need jobs. It has become more apparent that whatever social contracts existed between companies and employees, citizens and their government, in this country at least, are not working for citizens and employees. The companies have money, the government that we elect works for the companies. The Republicans can carry on all they want about socialism, fascism, and communism but unbridled capitalism and unregulated free markets are no better.

To quote Hubert Humphrey: Compassion is not weakness, and concern for the unfortunate is not socialism. Since all of us will at some point need help, suffer some unfortunate events, we ought to keep that in mind as we listen to the plans to cut or not even begin programs that can help our fellow citizens keep food on the table, a roof over their heads, and their health.
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Jake Wagner
Santa Barbara, CA

Krugman makes several points, several of them excellent. For example, he is absolutely right to focus on unemployment as the most serious economic problem facing the nation. Put simply, the problem is this: When 8.8% of Americans are unemployed, the US is producing fewer goods and services that might lift the general standard of living of Americans. Some of those unemployed are teachers who are losing their jobs as states and local communities give pink slips because they don't have enough money to balance their budgets. Another group of unemployed are the construction workers who could be building a high speed rail network, connecting LA to SF and Chicago to New York and New Orleans to Atlanta. It is these moderate length routes at which electric rail is more energy-efficient than air travel that relies on oil, a gradually dwindling resource.

More jobs would also boost government revenues, since workers pay taxes, and would stimulate small business workers, because employed teachers and construction workers can buy American-made appliances or shop in American stores.

But Krugman is wrong when he criticizes Ben Bernanke. There are two ways of stimulating the economy, monetary or fiscal policy. And with short-term interest rates at essentially zero, monetary policy has lost its traction. Quantitative easing is a second-best approach to stimulating the economy and since it deals with medium term interest rates, its harder to turn around if inflation starts to climb. Moreover, although quantitative easing has boosted stock market indices which indirectly stimulates the economy, it does not directly produce American jobs. That is partly because we now live in a world economy. McDonald's gets much of its profits from overseas. And corporations with money to spend can build factories in China and India where labor costs are lower, and the economies are in danger of overheating.

That's why fiscal policy is so important in a continuing employment crisis such as the one now afflicting the US. Hoover and FDR made some mistakes, but they also did some things right. For example, faced with declining revenues as unemployment climbed towards 25%, Hoover supported a raise in the highest income tax rates from 25% to 63%. FDR raised rates further still and introduced numerous programs to create jobs from rural electrification to the building of the Golden Gate Bridge. His WPA employed actors, writers and artists who were able to rebuild American art to be the envy of the world when the first Great Depression came to an end.

We need such leadership now. But Obama has not even kept up his campaign promise to eliminate the Bush tax cuts for the wealthy now that the US confronts deficits of $1.6 trillion per year. Krugman takes the easy way out. You don't have to pay for monetary policy. Unfortunately, preventing a Second Great Depression will require sacrifice. And even the progressive wing of the Democratic party sees sacrifice as something to be avoided.

Meanwhile, over 40 million Americans are now on food stamps. And the inflation that worries many in the markets is commodity inflation. Gold and silver are soaring, oil prices are climbing back to their July 2008 level, and food inflation is being felt not just in foreign countries, where it contributed to the unrest in Egypt, but also in the US. Faced with higher prices for beef and for grains, the American worker must just do with less because the high unemployment gives him no leverage to ask for higher wages. So yes, food prices do not permeate into the core CPI, but the suffering of America's poor is just as real.

So Krugman is also ever so slightly wrong about inflation. Bernanke is right to be bringing quantitative easing to an end. Bernanke has achieved what was possible with monetary policy, which unfortunately not a lot because of what Krugman calls the zero interest rate lower bound. Too bad we have no leader in the White House who can call us to the only policies that could do the heavy lifting in bringing unemployment down, the higher taxes couples with government jobs that would put millions of Americans back to work.
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Tom McMahon
Millis Ma.

The dynamics of the workplace have changed with the crash of the economy in October of 2008. Companies have learned to do without many personnal they had prior to OOct 2008 who were laid off yet never to return. The same scenario is played out over and over again accross the nation. Without massive government stimulus directed and clean energy technologies the United States will end up as the #2 economy in the world behind the Chinese should we fail to act. The fact is, the country that leads the way to clean buring bio fuels will be the economic powerhouse of tomorrow. The internal combustion engine is here for a while still, until a battery is developed that can power a car for eight hours or 400 miles between charges, and those charges must be able to recharge the battery in minutes not hours. If the United States and their technical know how can do this, we will continue as the leading economic superpower, if we fail, we are indeed in a huge hole economically. Clean energy technologies and infrastructure spending, both will make us stronger economically and help bring down unemployment. Inflation right now should be the least of our worries, getting America back to work, increasing the size of our workforce thus our tax base. Right now all the thinking is bass ackwards. Those who think they know show they don't know much, that is how to rebuild an economy, you start with your infrastructure, increase your tax base, then increase taxes on the upper 20% which will show fiscal disapline keeping interest rates low. Fail to do so will result in higher interest rates which in turn will use a greater % of our gross revenue and we will still have deficit problems which will keep us going in circles, going nowhere fast.

Thomas McMahon
Millis Ma
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Tom Richards, Citizen
North attleboro, MA

Paul, You are wrong. It is not the Fed's job to cure unemployment. it is he Fed's job to avoid a runaway inflation. It is Obama's job to lead in reform of the ruinous policies which have gotten us not this mess of loss of jobs to overseas. He needs to lead to: Allow the Bush tax cuts for wealth to expire; Apply import fees on nations that are out of trade balance with us; squelch the military/industrial complex by ending three prolonged costly wars; End deductions, except for interest on a primary residence; End those favorable treatments for agriculture and oil; Raise the age of entitlements for social security; Raise the tax on estates of over $5-million, Raise the marginal tax on incomes of over $2-million to what they were in better times under Eisenhower; Add $0.50 per gallon every three years to the tax on gasoline to curb usage and raise revenue, allowing a deduction for milage to and for work. But the Fed must avoid runaway inflation!
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Paul '52
New York, NY

In the period from 1981 - 1983, Ronald Reagan proved that the American people are happier with high unemployment than they are with high inflation; Especially when it' s oh so easy to castigate lazy people who don't want to work and whose sole interest is collecting benefits. So Reagan hiked unemployment from 7.5 to 10.8, a much bigger increase than we've seen under Obama, and then taxed unemployment benefits.

And he got 60% of the vote two years later.

Sadly, that's the lesson that counted.
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Bill Appledorf
San Francicso

Monetary policy alone cannot create jobs. Fiscal policy is the other half of the equation, and just when Washington should be spending on infrastructure repair, green technology, education, health care, and other programs that would put dollars in working people's pockets, the Republicans are on a rampage to "cut spending" (in quotation marks because the only spending they are cutting is the 2% of the federal budget that provides needed services to children, the poor, and the sick).

And "Obama's stimulus" the Republican's rail against as a total failure (again in quotes because 2/3 of what the Republicans allowed in 2009 was tax cuts for the rich and tax cuts for corporations) was a total failure because they wouldn't allow a real stimulus to be passed.

Yes, there was a shortage of money circulating during the Great Depression, as Mr. Bernanke knows from his scholarly perspective, but there was a dearth of private sector employment then as now, as the Republicans can't seem to or do not want to understand.
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Here we go again! In the wake of the Russian default and Long Term Capital Management crisis of 1998 the Fed lowered interest rates to "help the economy". Unfortunately much of the new liquidity flowed into Inter-Nut stocks and the tech bubble expanded. When that bubble burst in 2000 the Fed again responded by cutting rates and creating even more liquidity to "help the economy". And as before the money found its way into speculative flights of fancy, this time providing the funding for a whole host of new "investments" like subprime mortgages, CMOs and CDOs. And all the while the Fed was blowing those last two bubbles there was a slew of Very Serious Economists who assured us that the Fed's actions were completely safe because the CPI showed that there was no danger of inflation.

Dear Paul, may I gently suggest to you the notion, as evidenced by recent history, that the world can be going to Hades in a handbasket and you'd never see a problem in the CPI? The last two times the Fed turned on the money spigot full-blast we ended up in crisis, so why shouldn't we be worried now?

The Fed's balance sheet has exploded into the trillion range in recent years and yet employment remains stubbornly high. Krugman contends that the Fed needs to do even more. I would suggest that the reasonable conclusion is that the Fed can do very little to affect employment but the Fed can very easily ignite another speculative frenzy that ends in an even larger panic.

With apologies to the Bard,

"By Bernanke's printing of all these sums, something wicked this way comes"
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Rade Musulin
Sydney Australia

Dr. Krugman, I respectfully disagree with your analysis of the Fed's position. The problem is not with the Fed, it is with Congress. As you correctly point out, the Fed's mission is to provide short term corrections. It can be effective in doing so, provided that Congress and the Administration behave like adults and confront the nation's dire fiscal situation in a sober manner.

The prescription to reduce unemployment in the US is fairly simple. You raise taxes on frivolous consumption, wasteful use of energy, and high income earners; then invest the savings in US job creating infrastructure, education, and technology. The Fed cannot take those actions.

By pursuing a cheap money policy while Congress refuses it to its job, the Fed simply fuels back door tax increases on working people through unemployment, inflation, and a dropping dollar. Washington needs adult supervision, not more cheap money created by Fed monetary tricks.
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Despite some (e.g., ed connor) claims, I know plenty of college-educated people with extensive work experience who cannot find full-time work or any jobs at all. Unemployment is NOT a problem only for the less-educated.

Unemployment is, however, associated with age. These long-term unemployed all lost their last jobs after the age of 50 and have not worked full-time since.

And here the "serious" people in Washington are telling them that they shouldn't be able to draw full Social Security benefits until age 70. Instead, they're supposed to "save"--on a part-time income while selling first their house and then their car to survive.

I would love to see the long-term unemployed of each city hold highly visible demonstrations in front of their communities' major financial institutions, or even better, in front of their communities' largest TV stations.

This economy will not recover as long as millions of Americans are struggling and falling behind and forced to buy only the items most necessary for survival.
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Tom Krebsbach

I would hesitate to blame Mr. Bernanke too much on this issue.

First, he has taken extraordinary measures, QEI and QEII, that were never before attempted in this country. The fact that we had a Fed president in power who was well versed in the causes of the Great Depression and understood measures needed to counteract a similar occurrence was quite fortuitous for America. If he is hedging slightly at this point in the game, I wouldn't blame him too much.

Second, the main means of attacking unemployment should be fiscal policy. Funds dispersed by the government to put people to work are the most effective way of attacking unemployment. The fact that the federal government will no longer consider outlays to fight unemployment rests totally at the feet of Republican congress members. One cannot blame Bernanke if unemployed Americans are too stupid to understand this and end up voting in Republicans to control part of congress. Sorry, people, you get what you vote for. Next time think before you go into the voting booth.

Third, it is very likely that the recovery is now self-sustaining and that further increasing the money supply would have diminishing returns as far as reducing unemployment. The gains in employment have been fairly decent the last couple of months, and we are likely to see continuing gains in the months ahead.

Fourth, I would not blame Bernanke if he is hesitant to do exactly the opposite of what certain people are calling for. The fact that he has to answer to these people in congress and, to a certain extent, consider their demands places him in an untenable situation.

Fifth, I assume he does not formulate policy all by himself at the Fed. Other Fed governors, who now have voiced a fair amount of concern over inflationary pressures, certainly must have a good amount of input into the final policy prescriptions of the Fed.

All in all, I think Mr. Bernanke has done a pretty fair job. If there is blame to be placed in dealing with unemployment, it rests squarely on the shoulders of members of congress, primarily Republicans.
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Jack Shef

"Quantitative Easing": Where the government buys back the same bonds its selling to finance itself using electronically created funds (no actual printing is involved, just moving numbers around). The goal is to increase the money supply and the typical effect is to reduce the yield on the bonds. Originally used by the Japanese in 2001. Didn't work so well for them.

I'd love to read a good argument for why this is the most effective tool for the Fed to use if the goal is to reduce long term unemployment.
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ed connor
camp springs, md
April 29th, 2011
12:52 am
Do you really think the Fed can materially improve the unemployment rate?

Unemployment is primarily a phenomenon of high school or less educated workers. Unskilled labor is far cheaper overseas than here. That will not change. We also have an increase in high school drop out rates, now approaching 30% of high school age youth.

The government may be of some help, but, ultimately, the families of these young men (they are predominantly men) have to prevail upon their sons that poor, uneducated and stupid is not a viable life plan in the 21st century.

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