Ben Bernanke must go. But he is also indispensable.
That’s the quandary the country finds itself in. Bernanke has been mismanaging the economy ever since he took over as head of the Federal Reserve in 2006.
In fact, his policies have been so wrongheaded that he’s made himself virtually irreplaceable.
Nobody else would want to untangle the mess that Bernanke has made. And nobody probably could.
Bernanke was a member of the Fed’s board of governors when the housing bubble was inflating under then Chairman Alan Greenspan. When Bernanke took over from Greenspan in 2006, the new chairman was oblivious to the problems that were just surfacing.
So were a lot of people.
Bernanke bumbled his way through the financial crisis of 2007 and 2008 by giving the politicians everything they wanted. He brought interest rates down swiftly and said nothing when Washington decided that the best way to get out of the recession that had developed was an orgy of government spending.
When none of that worked, Bernanke stole a page from the Japanese playbook and, in December 2008, introduced something called “quantitative easing” to our country. This program sounded quite complex although it was just another version of the same old bad idea: a government prints excessive amounts of money and pushes it into the banking system.
Banks used their windfall to increase profits rather than lend out in support of the economy. I guess someone forgot to mention that part of the plan to the banks.
The first round of QE begat QE2, which led us to QE Forever — or whatever term you’d like to use to signify that the money printing may never end. The result is the same: four-plus years later the economy has had very little growth.
Last Friday the Labor Department released the employment numbers for the month of March. Only 88,000 jobs were created when around 200,000 were expected. There would be 400,000 or so new jobs a month in a healthy economy.
As I mentioned in a special Saturday column, job growth wasn’t quite as bad if you looked at the nonseasonally adjusted numbers. But even the 759,000 jobs that showed up in the raw data are disappointing as the economy moves into spring.
Worse, the nation’s work force declined by 496,000 people, who appear to have given up looking for work and therefore don’t count in the government surveys.
Where these people went is anyone’s guess but they are likely making do on public assistance, disability payments (the biggest growth area of the economy) or they are foraging for and cooking up the weeds that sprout in the pavement cracks.
And the situation isn’t likely to get any better.
Because our politicians have spent — and wasted — so much money since 2007 in their panicked response to what they said was the near failure of the financial system, Washington now needs to reduce spending even as the economy is getting weaker.
Here’s the part that gives Bernanke job security:
After Bernanke printed trillions of dollars in new, digital money, the Fed went out and loaded up on US government bonds. In fact, the Fed is now said to be buying three-quarters of all US government securities.
In almost any market that would be at best unethical and at worst illegal. The Fed has become the shill in the bidding process that keeps US government bond prices high and interest rates low.
And QE has been successful, at least so far, in keeping rates low and pumping up stock prices.
But Bernanke is beating up on American savers like basketball coach Mike Rice was pummeling his athlete/students at Rutgers. The only difference is that Rutgers can make a phone call to replace Rice. We are stuck with Bernanke until he decides to leave, which could be next year when his term as Fed chairman maxes out.
What if the next guy wants interest rates to rise? Well, the Fed could decide one day to abandon QE and its siblings and let savers get a fairer return on their assets. But then the government would have to pay a higher interest rate on the bonds it sells.
And, as I just said, Washington is already having trouble paying its bills even though interest rates are near zero. It’ll be less able to meet all its obligations if rates climb.
In other words, in order to restore normalcy to interest rates, the Fed will probably bankrupt the country, and make it the laughing stock of the world.
Washington knows that Bernanke won’t raise interest rates and that the chairman knows he can’t. And that’s why we are stuck with him and his failed policies.
It’s been six years and we are still waiting for the economic recovery. Things are a little better. But the economy isn’t healthy.
So, what do we need to do? Something different. Something like I have been proposing.
The best answer to our problems would be if the US economy suddenly started growing and this growth caused government revenue to increase.
I’ll suggest it again: Washington needs to change the rules on retirement plans so that Americans can use that money for things, like home purchases, that will help the economy.
Bernanke’s way is fraught with danger. My way isn’t. Maybe six years from now Washington will start listening to common sense.