Ben Bernake...finally Turns Left...Good For Him! "The Federal Reserve Turns Left"

[KoKo]

Published on Saturday, April 14, 2012 by The Nation
The Federal Reserve Turns Left
by William Greider

Washington is lost in a snarl of confusion, cowardice and wrongheaded ideological assumptions that threaten to keep the economy in a ditch for a long time. That prospect is not much discussed in the halls of Congress or the White House. It’s as though the crisis has been put on hold until after the presidential election.

As almost everyone understands, nothing substantial will be accomplished this year. President Obama is campaigning on warmed-over optimism and paper-thin policy proposals. Republicans propose to make things worse by drastically shrinking government spending, when the opposite is needed to foster a real recovery. The president, like the GOP, embraces large-scale deficit reduction. In these circumstances, it’s just as well that the two parties cannot reach agreement. After the election they may make a deal that splits the difference between bad and worse. In the worst case, they might inadvertently tip the economy back into recession.

In this sorry situation, there is really only one governing institution with the courage to dissent from the conventional wisdom—the Federal Reserve. The central bank declines to participate in the happy talk about recovery or in the righteous sermons attacking the deficit. In its muted manner, the Fed keeps explaining why the house is still on fire, why more aggressive action is needed, and is gently nudging the politicians who decide fiscal policy to step up. But its message is ignored by Congress and the president and viciously attacked by right-wing Republicans who say, Butt out.

The stakes in this elite dialogue are enormous. The outcome will be more meaningful for ordinary citizens than any other issue at play in this year’s campaign. If the Fed is right and politicians refuse to act, Americans may be condemned to a bitter slog through many years of stagnation.

Japan in the 1990s is the appropriate comparison. After its financial bubble burst, Japan saw its “lost decade” stretch into fifteen years of stunted growth. Its central bank responded hesitantly, and its monetary policy proved ineffective—rendered impotent by a “liquidity trap,” a condition identified by John Maynard Keynes. The United States experienced a similar fate in the Great Depression of the 1930s. As an economics professor, Fed chair Ben Bernanke is a scholar of that period. He is determined not to let it happen again. A decade ago, he scolded Japanese authorities for failing to be more imaginative and aggressive. They needed “the courage to abandon failed paradigms and to do what needed to be done,” Bernanke advised. His model was Franklin Roosevelt, whose “specific policy actions were, I think, less important than his willingness to be aggressive and to experiment—in short, to do whatever was necessary to get the country moving again.”

MUCH MORE OF A GOOD READ at::

http://www.commondreams.org/view/2012/04/14-2?print

[banned from Kos]

1. Good article. The Fed is packed with Obama appointments now.

Governor Sarah Bloom Raskin, who was appointed to the Federal Reserve Board by Obama, delivered an unusually caustic message to bankers last year. She is pushing substantive penalties for banking-sector abuses—the regulatory diligence neglected by the Greenspan Fed. “In the housing sector, we traveled a very low road that had nothing to do with looking out for the greater good,” Raskin declared. “On the contrary, there were too many people in all of the functional component parts—mortgage brokers, loan originators, loan securitizers, subprime lenders, Wall Street investment bankers and rating agencies—who were interested only in making their own fast profits…. Now it is time to pay back the American citizenry in full.”

A sense of moral resonance runs through the white paper. Fairness, it turns out, is an economic variable. So are the social consequences of doing nothing. The foreclosure mess, the Fed noted, hurts innocent bystanders when their neighborhoods are ruined by other people’s failure. Towns burdened by lots of empty houses lose property-tax revenue needed to sustain public services. The foreclosure process piles up “deadweight losses” in which nobody wins, not even bankers.