Federal Reserve Chairman Ben S. Bernanke promised Friday that the central bank is ready to act if the U.S. economic recovery effort falters.
The assurances he made at the Kansas City Fed’s symposium near Jackson Hole, Wyo., highlights not only the uncertainty of the economy, but also the futility of trusting policymakers to solve all our problems.
The Wall Street Journal and other news outlets reported last weekend the country’s gross domestic product grew 1.6 percent in the second quarter, even though the Department of Commerce had been estimating a 2.4 percent increase.
Besides the lacking GDP, home sales are dropping, and there are signs consumer spending is decreasing. The future of employment is also gloomy.
Bernanke said he doesn’t believe the economy will continue to falter, but if it does, the Federal Reserve stands ready to buy Treasury securities, which could stimulate the economy and lower long-term interest rates.
Many economists say there is a significant chance (more significant than Bernanke would probably have us believe) of the economy dipping into a second recession. Goldman Sachs economists put the likelihood of another recession at 25 or 30 percent.
In other words, despite the progressive steps President Barack Obama and Congress have taken to provide stimulus and create jobs, the future is still very uncertain.
I’m beginning to think the reason is that our policymakers, whether monetary or legislative, do not properly understand their roles or the limits of their power.
The government’s purpose regarding the economy is not simply to dish out money to boost the economy, but to enforce a stable structure in which banks and businesses can help create a vibrant economy that is fair to consumers.
Our central bank’s purpose should be to provide stability and integrity to the American dollar.
The two, however, have created an intricate system of borrowing, lending and buying in order to provide predictability and stability.
Yet it often seems to backfire on them.
Take, for instance, the subprime mortgage crisis. Not only did our government admit it failed to regulate Wall Street banks and rating agencies, but in 1995, it also amended the Community and Reinvestment Act to encourage lending to high-risk borrowers through subprime mortgages. In failing to keep banks honest through regulation, the government failed to govern, and in telling mortgage banks who to lend to, the government overstepped its territory (and expertise). Not to mention the undeserving bailouts.
In the ongoing economic crisis since then, the Federal Reserve has taken steps to restore liquidity to the financial markets through purchasing securities and government debt. Friday, Bernanke said the Fed could buy more Treasury securities if need be, but the Wall Street Journal reports experts don’t believe such intervention would significantly move the economy in any direction, whether that be up or not.
It seems like the Fed and lawmakers have run out of about every available tool. They are starting to realize the limits of their power. As Bernanke made clear this weekend “central bankers alone cannot solve the world’s economic problems.”
And intervention by the government can’t either. The government would like to think it can control everything from the economy in the U.S. to democracy in the Middle East. It hasn’t been successful in either.
But politicians and much of the media still act like people should look to the government as some type of superhero. This was evidenced, for instance, earlier in the year when the fiery CNN political analyst James Carville practically blasted Obama for not singlehandedly cleaning up the Gulf oil spill.
Furthermore, we have one man &mdash Bernanke &mdash who can affect the market with every spoken word.
The following months will be a reminder that our overspending government and our fiat money system still have some limits.
Matt Watson is a graduate student majoring in Spanish. He can be contacted at [email protected].