Someone Stop Bernanke Before He Kills Again
(I think I may be stealing that title from an LRC description of one of my previous articles.)
Well Scott Sumner has found a scary Telegraph article explaining Bernanke’s plans for the economy. Of course, Sumner laments that Bernanke may not get his way. In any event, check this out:
Fed watchers say Mr Bernanke and his close allies at the Board in Washington are worried by signs that the US recovery is running out of steam. The ECRI leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7 in the most precipitous slide for half a century. Such a reading typically portends contraction within three months or so.
Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed’s balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense scepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts.
“We’re heading towards a double-dip recession,” said Chris Whalen, a former Fed official and now head of Institutional Risk Analystics. “The party is over from fiscal support. These hard-money men are fighting the last war: they don’t recognise that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again.”
Mr Bernanke is so worried about the chemistry of the Fed’s voting body – the Federal Open Market Committee (FOMC) – that he has persuaded vice-chairman Don Kohn to delay retirement until Janet Yellen has been confirmed by the Senate to take over his post. Mr Kohn has been a key architect of the Fed’s emergency policies. He was due to step down this week after 40 years at the institution, depriving Mr Bernanke of a formidable ally in policy circles.
OK, and then what happens when the Fed doubles its balance sheet again, and this doesn’t fix the economy (again)? Will Sumner, Bernanke, et al. be stunned that the economy is suddenly “worse than we realized”? Will the third time be a charm?
The counterfactual is the economy could get way worse if they don’t double the balance sheet, again.
Sorry, a bad economy does not prove your point.
Didn’t we scuffle on Kudlow’s show? You sound familiar.
And a bad economy doesn’t justify theirs.
I’ve gotten so cynical about all this that I just submitted this comment:
“Yes, the economy will definitely collapse if the Fed doesn’t print up more money to make shoddy loans for purchases people don’t want, and it’s a shame that folks at the Fed are stopping Bernanke from such a wise action.”
Seriously, does Sumner not get what a “good economy” means? If your economic model leads you to believe that making dumb loans (technically, buying existing dumb loans, but functionally the same) is necessary for a good economy, You Made A Mistake Somewhere.
And yet Sumner argues that this is the “consensus”, that it’s “basic economics”. Well, then basic economics is wrong.
WTF? Sumner just lackadaisically agreed with that comment. What gives?