Imagine the following phone call that Ben S. Bernanke might have received this morning in the wake of last night’s election results. The time is 5:00am in Washington, D.C., and our Fed Chairman is sound asleep when he is jarred awake by the phone on his bedside table.
WH: Mr. Beranke?
WH: This is the White House operator; please stand by for the President
BO: Good Morning, Ben!
BB: Uh, good morning, Mr. President. What time is it?
BO: It’s time to get this country moving again! Did you see last night’s election results?
BB: No, sir, I went to bed early — just as I always do during 2 day FOMC meetings
BO: Well, Mr. Chairman, the American people have spoken. We lost the House and lost ground in the Senate. At least my buddy, Harry, survived, but I’m going to need your help.
BB: My help, sir?
BO: Yes. Do you remember the little chat we had in the Oval Office when I was still considering whether or not to reappoint you in 2009?
BB: Yes, Mr. President. You said you might some day need my help.
BO: Right, and that day is today. I kept my end of the bargain and did reappoint you, didn’t I?
BB: Yes, sir, but what does that conversation have to do with last night’s election results?
BO: Well, Ben, with the House gone and the Senate bottled up, the only stimulus package I could get passed during the next two years will be to allow oil drilling in sensitive places like the Arctic Wildlife Refuge or Central Park. And the only jobs bill that will likely reach my desk is one to build more prisons. Fiscal stimulus is dead for the foreseeable future, Ben, so our only hope is monetary stimulus.
BB: I see what you mean, Mr. President.
BO: You’ve recently said yourself, Ben, that the economy was underperforming and that the Fed was falling short of meeting both of its dual mandates.
BB: Yes, but…
BO: Well, I’m still the Commander-in-Chief, Ben, and I now I’m asking for your help to get our economy moving again. Is your fleet of money-dropping helicopters gassed up and ready to fly?
BB: Yes, sir. We will finalize the tasking orders this morning.
BO: Good man. When will you be telling the country the good news?
BB: We’ll outline the sorties and mission profiles in a press release at 2:15pm today, sir.
BO: Excellent, Ben. Let me leave you with one final thought. Our economy is sputtering and monetary policy is the only weapon we have left. Your President and your nation are counting on you.
BB: Yes, Mr. President. I won’t let you down, sir.
Please note that while this call is completely fictional, I believe the emotions, motivations, and political realities behind this imaginary conversation are real. As we await today’s FOMC announcement, let’s hope our leaders in Washington will one day realize this mess needn’t have happened. If Alan Greenspan, Ben Bernanke, and the academics who overpopulate the Fed truly understood that asset bubbles must be prevented, then they wouldn’t feel such an urgency to hose them down with liquidity after they pop. Unfortunately, we’ve now reached the point where desperate men will think that desperate times call for desperate measures.