Why is Bernanke a deficit hawk now?
Federal Reserve Chairman Ben Bernanke is warning about the growing deficit, which could reach $2 trillion this year. But there are signs that spending has helped rescue the U.S. economy. Why's he so worried now? Amy Scott reports.
Chairman of the Federal Reserve Ben Bernanke testifies before the House Budget Committee on current economic and financial conditions and the federal budget on Capitol Hill in Washington, D.C. (Jim Watson/AFP/Getty Images)
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Kai Ryssdal: When Ben Bernanke decides to make news, he doesn't really pull any punches, does he? The chairman of the Federal Reserve was on Capitol Hill today. And he used his moment in the spotlight to warn Congress about the growing budget deficit.
Washington is going to shell out almost $2 trillion more than it takes in this year. Of course all that spending was meant to rescue the U.S. economy from disaster. And there are signs that some of the money may be doing what it was supposed to do. So this morning's pronouncements by the Fed chairman prompt this question: Why's he such a deficit hawk now? Marketplace's Amy Scott reports.
AMY SCOTT: Bernanke warned members of Congress today that all their stimulus spending could eventually hurt the economy.
BEN BERNANKE: Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we as a nation begin planning now for the restoration of fiscal balance.
By confidence of the financial markets Bernanke means confidence that U.S. treasuries remain good long-term investments. Lately, bond investors have started worrying that all that deficit spending could lead to higher inflation. They also worry that all the borrowing could make the U.S. government less credit-worthy. So as the Treasury sells more long-term bonds, it's having to pay higher interest rates.
Axel Merk is president of Merk Investments. He says the Fed is counting on low interest rates to jump start the housing market and revive the economy.
AXEL MERK: The best thing that the Fed can do is try to talk down interest rates, talk some calm into the markets, so the cost of borrowing doesn't soar.
Today Bernanke downplayed any concerns about inflation. But in the last few months market predictions of inflation have jumped. Guy LeBas is a strategist at Janney Montgomery Scott.
GUY LEBAS: In reality one of the best indicators we have about future inflation is the market's expectations of inflation, so I'm quite sure the Fed was watching those figures.
You have to remember Bernanke's job is to keep inflation at bay. Sometimes that means managing expectations.
In New York, I'm Amy Scott for Marketplace.
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From ST. PETE, FL, 06/04/2009
Excuse me but my head is spinning. It's like a huge shell game. Only the sane people knew that the printing presses and buying of our own debt and the bailing out of failures was going to lead to crisis. Just take a look at the gold graph with the widget http://www.learcapital.com/exactprice and you can see that investors have been banking on gold to protect their money. Good grief did Bernanke suddenly get religion.
06/03/2009
You have to remember that Bernanke's job (really, the Federal Reserve's legislative mandate) is to use monetary policy to foster economic prosperity and social welfare (Fredrick S. Mishkin). The mandate, originally established in 1913 by the Fed. Reserve Act was amended in the Fed. Reserve Act of 1977. More specifically, the mandate is "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." The goals of full employment and stable prices are co-equal.
Bernanke having rescued America's financial oligarchs from their own mess now wants to cut the rest of us loose. The hugely inadequate fiscal stimulus, a bone thrown to the rest of us, is now portrayed as a problem for the economy and the stability of the dollar. So he wants to reduce spending, aka "social spending". This is a recrudescence of the tiresome Republican propaganda about cutting the cost of government in ways that help the upper class and disadvantage the rest of America. Since 1980 America has become the biggest banana republic. The financials bailout policies of the Bush and Obama administrations unambiguously and unapoligetically pulled back the curtain.
From CA, 06/03/2009
Didnt Bernanke go to congress last year tell that if they spend 700 billion bailing out banks, there wont be an economy. Didnt he cheer lead all the stimulus bills. Why didnt he think about deficits at that time. See the FEDs balance sheet with full of bank toxic assets, which they exchanged for treasuries. So FED is now telling congress about fiscal discipline. Pot calling kettle ...
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