The Paralyzed Federal Reserve - Bad News For All of Us

In the New York Times Paul Krugman looks at the paralyzed Federal Reserve which needs to engage in stimulus actions, yet sits watching as the economy teeters back toward recession. Krugman places blame on Fed Chair Ben Bernanke who seems afraid of his shadow - not to mention the batshit insanity of Rick Perry. It's an attitude of "to Hell with the country" as the needs of the nation are placed behind personal ambition and fear of criticism from crazy people. It's disconcerting that so many in public office - especially in the Republican Party - no longer put the nation even remotely first. It's all about the party and pandering to the worse anti-Constitution elements of the public . Here are some highlights:

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, the chairman of the Federal Reserve, 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 — that is, anything likely to make any serious dent in unemployment or offer any serious boost to growth. Why don’t I expect much from Mr. Bernanke? 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.

Obviously, the U.S. economy remains deeply depressed, and under normal conditions we would expect the Fed to pump it up by cutting interest rates. But the interest rates the Fed normally targets — basically rates on short-term U.S. government debt — are already near zero. So what can the Fed do?

[I]n 2000 an economist named Ben Bernanke offered a number of proposals . . . . . These could include: 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; . . .

Was Mr. Bernanke on the right track? I think so — as well I should, since his paper was partly based on my own earlier work. So why isn’t the Fed pursuing the agenda its own chairman once recommended for Japan? . . . . 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” (don’t ask). But it faced a political backlash out of all proportion to its modest effect on the economy, culminating in Mr. Perry’s declaration that any further monetary easing before the 2012 election would be “almost treasonous,” and that if Mr. Bernanke went ahead and did it, “we would treat him pretty ugly down in Texas.”

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. Back in 2000, Mr. Bernanke accused the Bank of Japan of suffering from “self-induced paralysis”; well, now the Fed is suffering from externally induced paralysis. In effect, it has been politically intimidated into standing by while the economy stagnates. And that’s a very, very bad thing.

With the Fed also intimidated into inaction, it’s hard to see any end to the ongoing economic disaster.