Background to Assess Ben Bernanke's Warning On the Fiscal Standoff and The Budget

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Tuesday, 20 November 2012 15:44

The Washington Post gave a careful account of Federal Reserve Board Chairman Ben Bernanke's testimony to Congress:

"Federal Reserve Chairman Ben Bernanke delivered a stark warning to lawmakers in a high-profile speech Tuesday, saying that the U.S. economy is at risk if they bungle negotiations over the looming austerity crisis.

"Bernanke’s remarks are notable less for their substance than for their tone and timing. In his most prominent public speech in almost three months, Bernanke made clear that he sees grave risks should the bargaining over the 'fiscal cliff' — a phrase he coined — lead to either steep, immediate fiscal austerity or prolonged, confidence-rattling brinksmanship. And he suggested that 2013 could be a good year for the U.S. economy if lawmakers reach a deal quickly and amicably. ...

"And the nation’s future prospects may be shaped in part by whether policymakers act in ways that instill confidence in the stability of U.S. policy.

"The economy is already bearing the weight of that anxiety, Bernanke said, and 'such uncertainties will only be increased by discord and delay. In contrast, cooperation and creativity to deliver fiscal clarity . . .  could help make the new year a very good one for the American economy.'"

It would probably be worth reminding readers that as a Federal Reserve Board governor and later President Bush's chief economic adviser, Mr. Bernanke completely missed the rise of the $8 trillion housing bubble, the largest asset bubble in the history of the world. When its collapse first started to create stress in financial markets, he publicly stated that he expected the problems to be restricted to the subprime market. When Bears Stearns collapsed in March of 2008 he testified to Congress that he didn't see another Bear Stearns out there.

It might be useful to give readers this background on Bernanke's track record when reporting his current statements on the economy.