Is the Fed Physically — or Mentally — Exhausted?

Dan Gross looks at why Fed Chair Ben Bernanke doesn’t seem too concerned about job losses.He disposes of the usual explanations, and then posits two ideas:

“First, it could be that Bernanke and the Fed are simply exhausted. In 2008 and 2009, the central bank did everything in its power and then some to rescue the economy from depression. It took rates to zero, lent directly to companies, and expanded the Fed’s balance sheet massively . . . it bought $1 trillion of mortgage-backed securities . . . The Fed used up all its resources saving the system.

Second, it could be a failure of imagination. In recent years, Bernanke and the Federal Reserve have proved themselves to be poor predictors of how big macroeconomic trends—low interest rates, unregulated subprime lending, the rampant use of derivatives—can have negative social, economic, and political impacts. Whether it was forecasting continued growth as the economy was about to slip into recession, or underestimating subprime losses, Bernanke hasn’t shown much clairvoyance. So perhaps it’s not surprising that the Fed doesn’t see how persistent long-term unemployment can erode labor force skills. Or that it doesn’t fully grasp how a spell of high long-term unemployment—something we haven’t seen in more than a generation—can harm the economy at large.”

I would posit simpler third option: The Fed cannot do anything about high employment because they are simply powerless.

That, unfortunately, is a much longer conversation. Meanwhile, go read what Dan wrote.

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Source:
Get Me a Job, Ben!
Fed Chairman Bernanke doesn’t seem to care about high unemployment. Why?
Daniel Gross
Slate, June 24, 2010 
http://www.slate.com/id/2258099/

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