Bernanke’s Bad News

Printing money to bail out Bam

Via-NY POST

Charles Gasparino

As if we need any more evidence that Obamanomics has failed this country miserably, Federal Reserve chief Ben Bernanke yesterday announced that the nation’s central bank will keep on printing money to try to keep the economy afloat.

The scary thing about the move (known as QE 3, after Quantitative Easing 1 and QE 2) is that people who know Bernanke tell me he harbors no illusions that it will actually result in stronger economic growth anytime soon.

Instead, they say, Bernanke is just trying to stave off economic disaster — a severe recession that many recent economic numbers suggest is a very real possibility — because the economic policy offered by the Obama White House has been such an utter disaster.

Bernanke, of course, is far too judicious to say anything like this publicly.
The official Fed statement on yesterday’s action went like this: “If the outlook for the labor market does not improve substantially, [the Federal Reserve] will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

Meanwhile, Bernanke’s own statements often seem to suggest the gridlock between Obama and Congress is a problem. Yet he’s well aware that, before we had gridlock, Obama and the Democrats had free rein — and gave us nearly $1 trillion in stimulus spending that failed to stimulate, a business-draining new health-care mandate and a lame energy policy that has led to higher domestic fuel prices.

And the president is promising more of the same if he wins a second term.
The result: Economic growth below 2 percent, record numbers of people dropping out of the workforce and falling wages. Middle-class incomes have fallen to 1995 levels. In other words: signs that a double-dip recession of a significant magnitude is in the cards unless something is done.

But the only card Bernanke has left is printing money — that’s what “quantitative easing” means. The Fed does it by buying bonds from the big banks (in this case, $40 billion a month of mortgage bonds). That drives down interest rates, and the banks, flush with cash, are supposed to lend out the money to businesses so the economy grows.

But this is QE 3 — and the stunt didn’t do much the first two times. Maybe it kept things from getting worse, but nothing much has happened in terms of significant, sustained growth.

The problem: Many of the businesses that have the good credit to borrow more aren’t, because they’re afraid of what to expect from a president who almost brags about plans to raise their taxes, no matter how lousy the economy. And banks aren’t so quick to lend no matter how much the Fed pumps in for the same reason: They’re scared about what the future of Obamanomics has in store for them.

Yes, the stock market loves the move — the Dow Jones Industrial Average rose 200 points yesterday. But that’s only because Bernanke also signaled yesterday that he’ll continue to keep short-term interest at just about 0 percent — which keeps bond returns so low that investors are almost forced to buy stocks.

Bernanke is well aware of the consequences of printing money: commodity price inflation (higher oil and food prices) and a further debasing of our currency.
And he knows that at some point he’ll have to do just the opposite, and start contracting the money supply and raising short-term rates before full-fledged inflation kicks in. When he does, the “wealth effect” of a rising stock market will evaporate, and so will the rest of the economy

But at least in the short term, he thinks it’s all worth the risk, considering the alternative: a nation falling back into severe recession because of a president with no clue about growing the economy, who thinks the best way to create jobs is to crush those who do the job-creating.