OPINION:
Financial markets waited breathlessly to digest the latest pronouncement of Federal Reserve Chairman Ben S. Bernanke. They were anxious to learn how long he would keep printing greenbacks to “stimulate” the economy.
For now, the Fed will continue purchasing $85 billion worth of bonds a month. Last month, Mr. Bernanke hinted that the Fed might slow the pumping of money into the economy, but the very idea of that sent markets into a tailspin. The Dow jumped as soon word was delivered that he wasn’t going to slow the monetary expansion.
When markets spend more time wondering what a bureaucrat says to Congress than what CEOs and entrepreneurs tell their shareholders, it’s a sure sign the central bank has assumed too grand a role.
The Fed thinks pumping cash into the economy will generate an economic recovery because people will spend the money in their pockets. But it’s only a matter of time before the printing presses run out of ink, and businessmen know it. Long-term investors wait to see the slightest sign that the Fed’s going to stop because a change affects interest rates, liquidity and borrowing costs.
The guessing game, “What’s Ben going to do this month?” sends uncertainty throughout the economy, adding to the difficulties employers already face trying to figure out how Obamacare will work (assuming it will) and how the Dodd-Frank Wall Street regulation bill will be implemented.
Mr. Bernanke, coy as a schoolgirl weighing invitations to the prom, says there’s no “pre-set course” for “quantitative easing” (his euphemism for “flooding the economy with dollars”). The policy could stop at any time, as the Fed chairman says he’ll adjust his response depending on how the economy performs. Having a central bureaucrat attempt to manage the economy in this way is a really, really bad idea. The chairman is acting on performance measures that lag behind reality. By the time inflation and unemployment numbers are crunched, the economy will have moved on, often in a different direction.
That’s bad because if the fed pumps in money several months into a recovery, it will create inflation. History since World War II is rife with examples of mistimed fiscal and monetary stimulus.
The Fed has been running the printing presses on overtime since 2008, and the result has been near-zero short-term interest rates. That’s good for minimizing the interest payments on the government’s $16.7 trillion debt. It’s not so good for the millions of Americans who remain jobless with the official unemployment rate at 7.6 percent. There won’t be more jobs on the horizon because economic growth is expected to slow from 1.8 percent to just 1 percent in the second quarter.
Savers, especially retirees, are on the losing end of the monetary madness. When interest rates are low, it means putting money in the bank or investing in bonds earns nothing in return after inflation.
It doesn’t have to be this way. Congress must revise the mission of the central bank, limiting it to a more modest role of ensuring price stability. Doing so would let the investors, businesses and savers make their long-term decisions based on what’s most likely to succeed in the marketplace, rather than guessing what Mr. Bernanke’s mood ring will tell us tomorrow.
The Washington Times
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