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.
His prediction was based on politics, the "political firestorm" that would ensue if Bernanke prescribed the kind of action he himself recommended for Japan in 2000, which included "targeting a higher rate of inflation and welcoming a weaker dollar," to encourage borrowing and spending. Turns out, Krugman is a pretty good prognosticator.
The Federal Reserve chairman, Ben S. Bernanke, said Friday that the economy is recovering and the nation’s long-term prospects remained strong, an upbeat assessment that offered little indication of any plans for additional measures to boost short-term growth.[...]
"With respect to longer-run prospects, however, my own view is more optimistic," Mr. Bernanke said in his prepared remarks. "The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years."
It makes one wonder if Bernanke is reading the same news as the rest of us. He was "careful to note that the nation faces significant challenges, including massive unemployment and an unsustainable federal debt," but essentially said that the Fed has done its part, now it's up to government, which he markedly criticized, essentially proving Krugman's assertion that politics was standing in the way of real action from the Fed.
Indeed, Mr. Bernanke devoted much of his speech to fiscal policy, rather than the monetary policy that is the Fed’s primary responsibility. And he offered an unusual critique of the government’s handling of those issues.
"The country would be well-served by a better process for making fiscal decisions," he said, noting that the political battle over raising the debt-ceiling had disrupted the financial markets "and probably the economy as well."
Political threats surely aren't the only reason Bernanke is refusing to take any of the actions that are indeed available to him, options he's talked about before. But it's hard not to get the distinct impression that the GOP—Rick Perry and his direct threats to Bernanke, the House teabaggers and their hostage-taking of the debt ceiling—are calling the shots, and driving this economy to further ruin for the sole purpose of destroying this presidency.