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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: JohnM who wrote (129215)	1/25/2010 10:45:39 AM
From: JohnM	Read Replies (1) \| Respond to of 541977

Krugman says approve Bernanke as the least worst possibility. Yep. If Bernanke were not approved, my vote would go to Blinder. ---------------------------- The New York Times January 25, 2010 Op-Ed Columnist The Bernanke Conundrum By PAUL KRUGMAN A Republican won in Massachusetts — and suddenly it’s not clear whether the Senate will confirm Ben Bernanke for a second term as Federal Reserve chairman. That’s not as strange as it sounds: Washington has suddenly noticed public rage over economic policies that bailed out big banks but failed to create jobs. And Mr. Bernanke has become a symbol of those policies. Where do I stand? I deeply admire Mr. Bernanke, both as an economist and for his response to the financial crisis. (Full disclosure: before going to the Fed he headed Princeton’s economics department, and hired me for my current position there.) Yet his critics have a strong case. In the end, I favor his reappointment, but only because rejecting him could make the Fed’s policies worse, not better. How did we get to the point where that’s the most I can say? Mr. Bernanke is a superb research economist. And from the spring of 2008 to the spring of 2009 his academic expertise and his policy role meshed perfectly, as he used aggressive, unorthodox tactics to head off a second Great Depression. Unfortunately, that’s not the whole story. Before the crisis struck, Mr. Bernanke was very much a conventional, mainstream Fed official, sharing fully in the institution’s complacency. Worse, after the acute phase of the crisis ended he slipped right back into that mainstream. Once again, the Fed is dangerously complacent — and once again, Mr. Bernanke seems to share that complacency. Consider two issues: financial reform and unemployment. Back in July, Mr. Bernanke spoke out against a key reform proposal: the creation of a new consumer financial protection agency. He urged Congress to maintain the current situation, in which protection of consumers from unfair financial practices is the Fed’s responsibility. But here’s the thing: During the run-up to the crisis, as financial abuses proliferated, the Fed did nothing. In particular, it ignored warnings about subprime lending. So it was striking that in his testimony Mr. Bernanke didn’t acknowledge that failure, didn’t explain why it happened, and gave no reason to believe that the Fed would behave differently in the future. His message boiled down to “We know what we’re doing — trust us.” As I said, the Fed has returned to a dangerous complacency. And then there’s unemployment. The economy may not have collapsed, but it’s in terrible shape, with job-seekers outnumbering job openings six to one. Nor does Mr. Bernanke expect any quick improvement: last month, while predicting that unemployment will fall, he conceded that the rate of decline will be “slower than we would like.” So what does he propose doing to create jobs? Nothing. Mr. Bernanke has offered no hint that he feels the need to adopt policies that might bring unemployment down faster. Instead, he has responded to suggestions for further Fed action with boilerplate about “the anchoring of inflation expectations.” It’s harsh but true to say that he’s acting as if it’s Mission Accomplished now that the big banks have been rescued. What happened here? My sense is that Mr. Bernanke, like so many people who work closely with the financial sector, has ended up seeing the world through bankers’ eyes. The same can be said about Timothy Geithner, the Treasury secretary, and Larry Summers, the Obama administration’s top economist. But they’re not up before the Senate, while Mr. Bernanke is. Given that, why not reject Mr. Bernanke? There are other people with the intellectual heft and policy savvy to take on his role: among the possible choices would be my Princeton colleague Alan Blinder, a former Fed vice chairman, and Janet Yellen, the president of the San Francisco Fed. But — and here comes my defense of a Bernanke reappointment — any good alternative for the position would face a bruising fight in the Senate. And choosing a bad alternative would have truly dire consequences for the economy. Furthermore, policy decisions at the Fed are made by committee vote. And while Mr. Bernanke seems insufficiently concerned about unemployment and too concerned about inflation, many of his colleagues are worse. Replacing him with someone less established, with less ability to sway the internal discussion, could end up strengthening the hands of the inflation hawks and doing even more damage to job creation. That’s not a ringing endorsement, but it’s the best I can do. If Mr. Bernanke is reappointed, he and his colleagues need to realize that what they consider a policy success is actually a policy failure. We have avoided a second Great Depression, but we are facing mass unemployment — unemployment that will blight the lives of millions of Americans — for years to come. And it’s the Fed’s responsibility to do all it can to end that blight. nytimes.com

To: JohnM who wrote (129215)	1/25/2010 1:54:13 PM
From: Katelew	Read Replies (2) \| Respond to of 541977

I'm not convinced. What I see is a very long recession, one now more than two years old, that is running it's course, i.e. following the typical business cycle. Possibly some of the stimulus had a marginal effect and saved some jobs, but whether or not the billions added to the deficit can be justified is the question. Also remember that only a portion of the stimulus money got directly into the economy, and very slowly at that. Now the banks are a different story. They had to kept from taking each other down in a domino fashion....either by direct monetary infusions or capital guarantees by the Fed Reserve or a combination of the two. Did they all need to be rescued? I agree with Buffet who says "no". But that's history and the banks have or are repaying the government rather nicely, I think. Most have diluted their stock so much that shareholders have borne the expense, and this is as it should be. But as to the economy in general, I have seen nothing more than the typical recession that comes along every few years to correct the excesses, i.e. the overbuilding and the overstocking of inventory that periodically happens. That's why the whole thing is referred to as "the business CYCLE". Business expands, business contracts, and so on and so on, and doesn't stay on a level footing for long. Democrats' recovery effort rescued the economy from collapse, This kind of language drives me crazy. Economies don't collapse, stock markets do. Economies contract...6, 7, 8%...and the stock market goes bonkers, selling off as much as 60 to 75% pricewise. I still think the cratering stock market wrongly influenced Bernanke and Congress in their decision making, and they like so much of the public saw the market as synonymous with the economy. As a result panic set in. And now we're stuck with the assumption that "The second Great Depression was forestalled." I heard Obama make this claim himself a few days ago....exact words. Bet it shows up the the STU. People who think we could have had another Great Depression simply don't know the fundamental characteristics of the first one.