Ben Bernanke held a press conference today. Doesn’t seem like much but for the Fed this was a pretty big deal. I rarely write diaries on here (I think I've only written one) since it usually takes me a long time and I rather soak in what others are saying. However, I'm going to try to make it a point to try to write more diaries and I started with this one because I've taken notice of Yglesias’s pointthat progressives and the Kos community should care more about the fed. Its policies have an enormous influence on the economy and since Congress has given up on the unemployed, the Fed is their only hope. Since I didn't see any diaries up on the Bernanke press conference today I figured I would get the ball rolling.
Basically what Bernanke said wasn’t a big surprise. The Fed will keep interest rates low, unemployment is too high but gradually getting better and the economy continues to grow. The problem is that there is no urgency. When reporters asked if the Fed could do more to lower unemployment he basically said no since any further measures would risk inflation. Which is crazy – inflation has been low for years and remains so. How people think that the economy is at risk of overheating anytime soon is beyond me. We need even more monetary expansion.
Here’s what Bernanke should have said at his press conference today:
"I've read Dave Leonhardt's piece and I have to admit he's right. I’ve also notice that Krugman has been screaming his head off about this for a while now and gone insane trying to point out the obvious: Unemployment is unacceptably high; Inflation remains low. In fact inflation hasn’t been a problem since the 1980’s and yet for two decades we’ve flipped out at any slight uptick in prices. Yes gas and food prices are high right now but that’s due to increased demand, not because of any underlying rise in inflation.
Right now millions are suffering needlessly due to the government’s unwillingness to stimulate sufficient aggregate demand. Therefore, in accordance with the Fed's dual mandate to maintain maximum employment and price stability, I am embarking on a mission to convince the other voting members of the Open Market Committee to establish the following positions for the Fed:
1) Commit to maintaining a near zero interest rate for a few years
2) Increase our inflation level target to 3, maybe even 4%
3) Paying a negative rate on bank reserves
4) Trying to convince Congress to stop worrying about the debt short term and pass a real fiscal stimulus
Basically print a ton of money and shower the country with it until companies and banks stop holding cash reserves and being investing it to generate jobs. If inflation starts to become a REAL problem, not just some slight uptick that causes people freak out, but begins to rise 5-6%, then we will tighten up. Until then, we are going to make it rain."
As I was writing this Ezra Klein put up a postwith the exact same title that was funnier and better written so I recommend checking it out. This part particular really made a strong point:
Let me be very clear: 8.8 percent unemployment in the second year of a recovery isn’t a problem or a cause for concern. It’s an absolute, unmitigated catastrophe. It is millions and millions of people who are suffering unnecessarily — people who we know will have lower lifetime earnings, more depression and suicide, more arrests and divorce. In fact, it’s worse even than that: We know their kids will suffer, too, with lower earnings over the course of their entire lifetimes. And we’re not doing nearly enough about it.
We need to get unemployment down. Not in a few years. Now. Unfortunately it seems neither Congress nor the Fed cares enough to do anything about it.