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Why Bernanke's Bad Day Is Actually Good

Reading through Frank Ahren's liveblog of the hearing, it doesn't look like Ben Bernanke had much fun testifying before the House Oversight Committee this morning.

But that's probably a good thing. I'm becoming increasingly convinced that one of the best indicators of the recovery is the degree to which Congress is emboldened to second guess and interrogate the Chairman of the Federal Reserve. There was so much fear and uncertainty during last fall's crisis that even traditionally feisty congressmen were cowed and eager to support anyone who seemed like they might know what's going on or have a plan for getting us out. It's a bit like how children will fight with their parents in the day but not when they wake up during the night. The more things return to normal in the economy, however, the more they return to normal in the Congress. And today's hearing felt normal. I find that cheering.

By Ezra Klein  |  June 25, 2009; 2:30 PM ET
Categories:  Federal Reserve , Solutions  
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Comments

I see what you're saying, but I strongly disagree with your underlying point that it is good that Congress is being disrespectful and non-deferential to the Chairman of the Fed. For the last 80 years, and arguably 100 years, the Fed has been independent. This independence has allowed the Fed to overcome the short-term political temptation to perpetually provide a loose monetary supply in exchange for short-term growth, and balance this with the long-term need to avoid ruinous inflation. Bernanke's actions over the past year, though arguably helpful and/or necessary, have had the unfortunate effect of politicizing the Fed, thus rendering incredible its Chinese Wall division from the political process. When combined with the massive present and future public fiscal deficits, citizens rightly fear for the safety of their life savings, and the middle class is rightfully concerned about the purchasing power of their stagnant real incomes.

Posted by: Dellis2 | June 25, 2009 2:58 PM | Report abuse

I'd say the Congress has really dropped the ball on all this. The proposed reforms only go so far but it's not all the fault of the administration.

Congress has held no hearings along the lines of the Pecora Commission and this lack of activity has created a climate where the monster banks are pretty much left the way they started out.

In other words, waiting for the next B&B (Bubble & Bailout)...

Posted by: leoklein | June 25, 2009 5:54 PM | Report abuse

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