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Four years of a financial crisis, recession and deep unemployment clearly have not left Americans without belief in a higher power. We have no one to blame but ourselves for the fact that our choice of a higher power is Federal Reserve Chairman Ben Bernanke.
There have been fewer sadder spectacles than the calm, academic Bernanke explaining to a room of incredulous reporters why the Fed did not take more extreme action to "save" the economy and goose the markets. With Europe in a crisis and the US Congress flailing uselessly in an election year, the Federal Reserve, led by Bernanke, chose the path of least effort: to keep trading in short-term Treasury bonds for longer-term ones. That stimulus, called Operation Twist, has two goals: to keep US mortgage rates low, and to convince investors to trade in their safe, stable, long-term Treasury bonds and buy other bonds, like those of companies or banks, instead.
Four years ago, the idea of the US Federal Reserve actually buying anything, in the market, would have been an extraordinary occurrence. The Fed's main job, for decades, was to either raise interest rates, lower them, or give them a reassuring pat. But since 2008, the Fed has become not just a central bank but an active trader, buyer and investor – both competing with and helping veteran investors buy and sell Treasury bonds and mortgage-backed securities.
In response to one of a series of churlishly toned questions asking why the Federal Reserve isn't doing more to save the market now, Bernanke gently pointed out that the bank had cut interest rates all the way up until 2008 – then started operating with "nonstandard monetary tools" like buying up Treasury and mortgage bonds. The Fed never would have done that before, Bernanke implied. Indeed, the list of Fed stimulus measures since Bear Stearns failed would fill up pages of description. Translation: do more? What do you want – blood?
Nor did Bernanke get a break from the markets, whose slave he has been since the financial panic of 2008. Following the crisis of Bear Stearns, the US financial markets have been enormous beneficiaries of Bernanke's determination to transform the Federal Reserve into a trading desk. Determinedly low interest rates and the Fed's obvious willingness to step in and save the US financial system from collapse have guaranteed financing for companies and banks – and that's not counting the raft of other stimulus measures the Fed has supported, including cheap lending and outright bailouts.
But the market's reaction to Bernanke's action, and his statement, was a sustained and noticeable sulk. After so many years of financial support from the Federal Reserve, even the most cut-throat of capitalist traders have taken government help for granted. CNBC, the financial television channel, scrolled through the major market indexes as Bernanke spoke – and the Dow Jones Industrial Average, Nasdaq and S&P500 all bled red with each additional word from the Bearded One.
Indeed, so many of the questions to Bernanke after his announcement centered on a variation of one (very good) question: would the US central bank admit that it was "out of bullets"? Were the Fed's attempts at saving the US economy all washed up? Why was the Federal Reserve even bothering, really? Why not just pack it all in? Thanks for playing, but go big or go home, Ben.
One might have been forgiven for thinking, while watching this, that the US was ready to send Bernanke to career rehab for has-beens along the lines of Strictly Come Dancing. Bernanke himself, however, would not be swayed. His response to the skeptical questions was to gamely maintain that his main tool of economic help – that is, reducing interest rates – still mattered, that it could still influence the United States' economic situation. He denied that the Fed was out of tools. That's true: there's more the Fed can do, and probably will do if Europe's crisis really gets out of hand.
But also, Bernanke could not have given any other answer. He could not possibly admit that the Federal Reserve cannot do any more. Bernanke, wise as he is, knows that in dealing with the US financial markets, he is dealing with a far-more faith-based business than even the Church. Financial markets may stray from the path, but ultimately, they have to believe that Bernanke has a mystical power over their investments.
But when and why did an entire country take it for granted that Ben Bernanke, and his toolbox of economic measures, were the be-all and end-all of the US recovery? It wasn't always this way.
Back in the early 1990s, President Bill Clinton rode to power on the strength of one savvy motto: "It's the economy, stupid." The economy used to be the combined work of the president, his advisers, the US Congress, the country's chief executives of major companies, and – only tangentially – the Federal Reserve, which presided distantly, from a cloud, over interest rates. But by the time George W Bush was president in 2008 and the financial crisis hit, the president had abdicated oversight of the nuts and bolts of the economy. The faces that frowned and struggled and strained over solutions from then on were those of the Treasury Secretary, of the president of the New York branch of the Federal Reserve, and of the chairman of the entire Federal Reserve. Congress, seemingly forever trapped in an election-year cycle, limited itself to either approving or vetoing what less distracted minds had created.
Indeed, when asked about Congress, Bernanke adopted the chipper tone of a wife who knows her husband will never pick up his socks and has just accepted the task. "Collaboration … would be great!" he said, with the tone of someone who has asked millions of times and doesn't really expect any help at all. Bernanke, in fact, has been pointing out for years that his small corner of the world – the ability to influence interest rates – is not a panacea for the markets, and that Congress should step in with stronger stimulus measures.
The US Congress has made attempts, passing several stimulus measures, but almost all were hurried and ill thought-out. And the pressure to get re-elected has rendered the lawmaking bodies of the United States all but useless on economic issues this year. In fact, the country is facing a "fiscal cliff" of potentially disastrous economic effects, and the Congress has been dragging its feet. As for the president, he himself is running for re-election, and his influence over the economy right now seems sadly limited to repeated, televised urgings to Congress to do something.
So, it is only Bernanke, the former professor, who is left to carry the weight of the troubled US economy on his tweedy shoulders. He is father, adviser, doctor, investor and guru. It's a lot for one man – and one institution – to handle. No one else in his position, in the history of the United States, has ever had to manage the economy to this degree. But now, we don't even expect anyone else to do that job. We found our higher power.
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Heidi Moore reports for American Public Media's Marketplace
Comments
20 June 2012 11:07PM
'Now, we look to its chairman for salvation'.
No, not really Mrs/Miss Heidi Moore .
You look to its chaiman for more, massive print work and some devaluation.
Ask Mr P. Krugman, he 'll tell you all about. The ins and outs included.
20 June 2012 11:30PM
'And the pressure to get re-elected has rendered the lawmaking bodies of the United States all but useless on economic issues this year. In fact, the country is facing a "fiscal cliff" of potentially disastrous economic effects, and the Congress has been dragging its feet'.
My inference - probably debatable, questionable but populist for sure- is that politics and politicians, besides being rather costly parasites for the average citizen, tax payer are also very much part of the problem, no solution at all.
I sincerly, genuinely loathe and distrust those creatures.
Monarchs and popes such too.
20 June 2012 11:42PM
The US has been borrowing from tomorrow 45 cents of every dollar it spends today. If that's not stimulus, what is? Even if it never has to be repaid, the interest on the debt keeps accruing as future drag on the economy. This has only worked well enough to prop the US economy up to a 2% growth rate, that clearly is not self sustaining. Borrowing more to spend more cannot work because the borrowing imposes an ever increasing cost that acts as drag on the economy.
What we need to do is get back to basics, allow reasonable risk free returns, so that, first, prudent people are not robbed of their savings, second that wild risk taking not be rewarded, and finally so that individuals, investors, and institutions can get back to making economic choices and investments on a rational basis with reasonable returns.
Lee Adler http://wallstreetexaminer.com
21 June 2012 12:07AM
Bernanke studied the 1929 crash and copied it.
21 June 2012 12:29AM
Yes, Bernanke is the man but the Fed has, after 100 years, run out of any EFFECTIVE tools. The end of the Fed is likely near and the politicians are going to hang the rope around the neck of the Fed, Bernanke first. They were spineless 100 years ago and they are the same today. Bernanke has got to shout to the media that it's time for the pols to take over. They are going to need a scapegoat and they are going to have take real action, otherwise it's WW3.
21 June 2012 1:02AM
I know the author doesn't usually write the article subheading, but this is facile stuff.
Who is this "we" you speak of? Anyone with half a clue must realise that pushing interest rates down to all time lows and printing trillions in extra cash does nothing but kick the can further down the road.
The time for systemic reform should have been several years ago when the neoliberalised system crashed but these barmy policies of seemingly limitless financial sector bailouts, quantitative easing money printing and robbing savers through below inflation interest rates is just keeping the speculative wankers that trashed the economy from falling into the slurrey pits of debt they created for themselves. If anything Bernanke, the Fed, the Bank of England, the ECB, the IMF etc have made the situation far far worse by evading systemic reform and keeping the deadbeat banks on life support, rather than letting them die, thus making space for less recklessly speculative financial institutions to take their places.
The most infuriating thing is that after three decades of letting countless productive "real" industries go to the wall for a bit of state support in difficult times at the behest of the neoliberal pseudo-economists, the western governments and their central banks did the most spectacular u-turn in economic history to bail out their financial sector mates, the ones that had gleefully supported the refusal to interfere in the market to save countless proper industries from ruin and the losses of millions of jobs across the West.
No wonder China are catching up so quickly, given the ruinous economic orthodoxy of globalised neoliberalism, which is still being pushed hard by the IMF, ECB etc despite the fact the whole insane ideology was spectacularly and comprehensively invalidated as soon as the western governments started their no-strings bailouts policies and the Fed and the BoE fired up their printing presses and forced down interest rates to save their reckless gambleoholic financial sector mates from annihilation at the expense of hundreds of millions of ordinary working people, prudent savers, pensioners, etc.