Federal Reserve Chairman Ben Bernanke made a luncheon speech Monday before the Economic Club of Indiana (who knew there was an economic club in Indiana?) on behalf of the Fed’s prolonged policy of quantitative easing, which I have said from the outset would persist indefinitely.
Bernanke was personable and eloquent in his efforts to reassure the audience that steps are being taken to fulfill the Fed’s dual mandate of promoting price stability and maximum employment by continuing to buy securities until the economy achieves growth above the current trend, so that enough jobs would be created to enable workers to return to the labor force.
On the same morning, Charles Evans, president of the Federal Reserve Bank of Chicago, urged the Fed to pursue an even more aggressive policy than it has announced, until the unemployment rate drops to 7 percent.
Both minimized concerns about inflation.
Bernanke also repeated his opposition to legislation calling for a Government Accountability Office audit of the Fed, saying they can audit what they want as long as it doesn’t involve monetary policy, but that it would compromise the independence of the Fed. He did this even as he campaigned for the policy of prolonged intervention during the political season when some pundits doubted the Fed would be so bold.
The late Robert Weintraub, a student of Milton Friedman who led the team that drafted the Humphrey-Hawkins Act that restates the dual mandate and provides for semiannual reports to Congress by the Fed, told me many years ago that Fed chairmen, regardless of party, would support presidents, regardless of party, so that both could continue in office.
Weintraub did not believe in the independence of the Fed, and he told me that if the Fed were meant to be apolitical, it would have been located in some out-of-the-way place like Colorado Springs rather than in Foggy Bottom.
For those who believe, for whatever reason, that the Fed stands above the political fray, Bernanke’s appearance offers support of a detached expert for the policies of the authorities to support the economy, with an emphasis on the politically powerful interests of Wall Street and what I call the “housing industrial complex.”
For those concerned that granny is being left behind by this program, the economic team offers the hope that the benefits of the boomlet being underwritten by Washington will trickle down.
In one of a growing list of gaffes that has plagued his campaign, GOP presidential nominee Mitt Romney proclaimed that if elected, he would replace Bernanke. Perhaps pollsters could determine to what extent this has contributed to the free fall condition of Romney’s candidacy, but Bernanke’s appearance on the stump seems likely to have the effect of reassuring voters for whom the economy is the biggest issue that if Obama is re-elected, the economic planners will continue to provide extraordinary support.
Every time Bernanke reiterates this, financial and housing stocks take off, and the Wall Street oligarchs exclaim, “Is this a great country, or what?!”
Feinberg, Bernanke, Obama, Romney
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