Bernanke's Fiscal Focus

Ben Bernanke’s testimony to Congress today starts with 7 paragraphs on general economic conditions, continues with five more paragraphs on the state of the financial sector, and then has six important paragraphs on fiscal policy. Finally, at the end, he spends one paragraph talking about what the Fed is doing in terms of monetary policy and quantitative easing.

This is reasonable enough: After having hit the zero bound, there’s not much which can be said about monetary policy, and fiscal policy is going to be the main driver of America’s standing in the international financial markets going forwards. What’s more, for the past couple of years the Fed has been working hand-in-glove with Treasury: The distinction between fiscal and monetary policy, and the independence of the central bank, have gone by the wayside (quite properly, I might add, contra Angela Merkel) in a time of crisis.

Still, it’s a little disconcerting to see the Fed chairman talk so freely about fiscal policy: now we’ve reached this point, it’s going to be hard to stop him talking this way, even after the crisis is over. And the distinction between the Fed chairman and the Treasury secretary is a useful one, which really should be maintained.

Update: James Pethokoukis, for one, seems to think that the Fed’s actions are divorced from the Obama administration’s economic policy. It’s not clear why.

Comments

[James Quinn:]

He has a major set of balls to talk about fiscal policy while he is hiding hundreds of billions in worthless assets on the Fed Balance sheet and printing a trillion dollars. Criminal.

theburningplatform.com...

Jun 03 03:46 PM

[Abstract Ba...:]

Should the Fed go fiscal if you lose your wallet in the parking lot, dear? Crisis! Just because you can't shoulder the same level of pain Merkel can doesn't mean she's 'improper'.

Jun 03 04:54 PM

[jhartz:]

A majority of the electorate voted to let Obama run this country, but less than thirty percent feel he's qualified to run either chrysler or GM.

That alone should tell us how far this country has fallen in the past few years.

Fifty years to go from being the largest creditor nation to becoming the largest debtor nation. Oh, what a ride!

Jun 03 05:20 PM

[Fighting Yoda:]

I think Ben's fiscal discipline comments are only as a result of Chinese Geithner trip backlash and harsh criticism from Angela Merkel: "I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line," Merkel said, according to news reports. "We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years' time."

But he is still hopeful about growth later this year - I think he is referring to the growth of his beard - grey shoots.

Jun 03 05:29 PM

[Nik Kondrat...:]

I don't think 99% of the general public realizes that a private organization is playing such a major role in setting fiscal policy, nor if they did, would be able to tell you the difference between fiscal and monetary policy. That said, it's a bit unsettling--if expected, given the current instability in our financial system and economy--that the Fed is shaping said policy and is beholden to no one but its member banks.

Jun 03 08:55 PM

[Market Sniper:]

Nik, the average citizen thinks the Fed is an arm of the government. Few know it is a private institution owned by its member banks. Shhhh!!! We don't want that to get out there now do we?... It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
Henry Ford...never more true now than when first uttered.


On Jun 03 08:55 PM Nik Kondratieff wrote:

> I don't think 99% of the general public realizes that a private organization
> is playing such a major role in setting fiscal policy, nor if they
> did, would be able to tell you the difference between fiscal and
> monetary policy. That said, it's a bit unsettling--if expected,
> given the current instability in our financial system and economy--that
> the Fed is shaping said policy and is beholden to no one but its
> member banks.

Jun 03 10:00 PM

[Vienna:]

How upsurd, first you bust the whole system, then you complain about spending spree, and then you complain that others don't start their printing press just as you do.

And again, screwing up and lecturing the world what to do.

Should I give you a review on details?

Jun 04 06:22 AM

[onebir:]

"Still, it’s a little disconcerting to see the Fed chairman talk so freely about fiscal policy: now we’ve reached this point, it’s going to be hard to stop him talking this way, even after the crisis is over."

Perhaps if the Fed (& other central banks) had commented *more freely* on fiscal policy in the past, government debt at the start of the crisis would have been lower, leaving more headroom for fiscal stimulus...

Jun 04 08:57 AM

[D. McHattie:]

Now if that ain't the pot calling the kettle black. Take a look in the mirror, benji.

Jun 04 09:20 AM

[TinyTim:]

I'm surprised the Fed even has to answer to Congress.
Will be interesting to see what Obama's reforms have in store.

Jun 04 02:59 PM

[inparadigm:]

The fed is not a provate organization. Put down the reefer and the copy of "The Creature from Jeckyll Island" and deal with it.

Aug 05 01:24 PM