Dean Baker: Bernanke's Trifecta of Errors

[Better Believe It]

September 8, 2010

Infallibility Complex
Bernanke's Trifecta of Errors
By DEAN BAKER

The Fed was apparently unable to recognize a massive and unexplained departure from a 100-year-long trend in the largest market in the world as a bubble. Even after they had just seen the stock bubble grow and implode they still could not conceive of a bubble in the housing market. Bernanke and other spokespeople for the Fed have also claimed that there was nothing that they could have done even if they did recognize the bubble.

Having missed the largest financial bubble in the history of the world, Bernanke quickly moved to colossal error number two, failing to take adequate steps to counteract the downturn. While Bernanke deserves credit for being more aggressive than some of the quacks who would have just let the financial system melt down completely, his response to mass unemployment has been woefully inadequate.

Bernanke’s third colossal error is playing along with the deficit fervor being promoted by those seeking to gut Social Security, Medicare and other areas of social spending. The downturn has predictably led to an explosion of the deficit, as public spending had to fill the gap created by the collapse of private spending.

However there is no reason whatsoever why this deficit should place any burden on the long-term federal budget. A responsible Fed chairman would announce his intention to simply buy and hold the government debt used to finance the deficit. This would prevent the debt from placing any future burden on the public budget since the interest payments on the debt would go to the Fed. The Fed would in turn refund the interest to the Treasury each year, leaving no net interest burden on the government.

If Bernanke were honestly doing his job he would be educating the public about why debt run up to counteract a downturn need not impose a burden on the budget. Instead, he is running around telling Congress to cut Social Security because “that’s where the money is.”

Read the full article at:

http://www.counterpunch.org/baker09082010.html

[xchrom]

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[girl gone mad]

2. k & r ..

Of course Bernanke understands what Baker is saying. They've been busy little beavers over at the Fed, printing money like mad to save the banks. Why this false pretense that we can't print money to save the American worker? Why lie and claim SS must be raided to cover a deficit which is not actually problematic, was caused almost entirely by the financial crisis and which will only be exacerbated by any austerity measures? Who is Bernanke really working for?

[Hannah Bell]

3. kr