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Posted at 11:21 AM ET, 02/ 9/2011

Bernanke tries to reassure the GOP

By Ezra Klein


Federal Reserve Chairman Ben Bernanke is testifying for the first time before Rep. Paul Ryan's Budget Committee today, and his prepared remarks are worth a read. Message? Nothing much to see here.

Inflation is low, employment is depressed, and the economy is growing but not fast enough, Bernanke says. Therefore, the Fed has to act. But he's careful to try to argue that the Fed's latest actions, which haven't been particularly popular among Republicans in general and Ryan in particular, are less unconventional than many in the party have suggested. "Although large-scale purchases of longer-term securities are a different monetary policy tool than the more familiar approach of targeting the federal funds rate," Bernanke argues, "the two types of policies affect the economy in similar ways."

In other words, if you believe in the Fed's normal activities -- and most in Congress say they do -- quantitative easing shouldn't scare you. Nor should you think the Fed is running off in a new direction, with new priorities. "We remain unwaveringly committed to price stability," Bernanke promises, "and we are confident that we have the tools to be able to smoothly and effectively exit from the current highly accommodative policy stance at the appropriate time." Bernanke's hope is that he can persuade Republicans who've grown skeptical of the Fed over the past two years that there's no difference between the Fed now and the Fed when Alan Greenspan was in charge.

Of course, some in Congress didn't like the Fed even back when Greenspan was helming it. In particular, Rep. Ron Paul, who is chairing his first hearing today as head of the committee that oversees monetary policy -- which is to say, the committee that oversees the Fed. Paul, of course, recently published a book titled "End the Fed," so he's not exactly a friendly face. And eventually, Bernanke is going to have to head over to his hearing room. That's when the sparks will really fly.

Photo credit: Jim Watson/AFP/Getty Images.

By Ezra Klein  | February 9, 2011; 11:21 AM ET
Categories:  Federal Reserve  
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I have a BIG bromance with Bernanke, but he has tried to go a bridge too far as they say.

Inflation is not low but accelerating higher every week. The market in general is ignoring his opinion and has bid up Treasury yields over 100 basis points in the last couple months, in spite of agressive Fed action to keep them down.

This rising yield curve is also reflected in a big run up in financials and a diminution of home builder stocks, which will be adversely affected by rising mortgage rates.

We owe Bernanke a lot (if you buy into our financial system) but right now he reminds me of the kid dressed as Darth Vader from the Super Bowl commercial, stubbornly trying to move things his way by sheer force of willpower.

Posted by: johnmarshall5446 | February 9, 2011 11:45 AM | Report abuse

To paraphrase Upton Sinclair -

It is impossible to reassure the GOP on inflation when their political fortunes depend upon their not being reassured.

Now, when Bush was in office and Greenspan was running things? Well, that was different.

Posted by: willows1 | February 9, 2011 11:55 AM | Report abuse

Have you had a look at the House Budget Committee page? It looks like a Paul Ryan Facebook page

Posted by: bdballard | February 9, 2011 12:13 PM | Report abuse

" there's no difference between the Fed now and the Fed when Alan Greenspan was in charge."

this is reassuring?

Posted by: bdballard | February 9, 2011 12:22 PM | Report abuse

The Fed is doing it's best to increase employment, just how is my question. Lowering foreign taxes to give dividends to the utra wealthy is Bernanke's idea of addressing employment. Taxes on healthcare is fine by him but taxes on billionaires whom will outsource your job in a NY mintute is a drag on the economy. Looking at what WalMart offers opposed to a Sear of 30 years ago tells this American quite a different story. The GOP is intent on making Americans so poor Mexicans will no longer look here for a better life. His financial policies have made big banks bigger while our northern neighbor reduced their income having their banks the strongest in the world while growth in Canada goes well beyond population growth to increased standards of living while we have dropped to $26,000 per capita. The GOP is massaging it's base with gay and abortions bills while at the same time support less job creation with more pain for the working class.

Posted by: jameschirico | February 9, 2011 12:50 PM | Report abuse

While one would not wish to accuse Mr. Bernanke of prevarication, here is an explanation of how well a decade of quantitative easing has worked for the Bank of Japan when looking at its impact on unemployment in Japan:

I wonder how Mr. Bernanke can think that his QE2 experiment will be any different?

Posted by: Baywoodfarm | February 9, 2011 1:38 PM | Report abuse

The Republicans put us in this position; why do we have to appease those that would have us all fail again?

Posted by: vigor | February 9, 2011 1:47 PM | Report abuse


Canada's GDP growth has been terrific, but it's based largely on intrinsic aspects of their economy that cannot be duplicated.

For instance, Canada is one of the overall wealthiest nations in the world in mineral resources, a leader in the categories of copper, iron ore, lead, nickel, silver and zinc. The doesn't even mention the potential of the Tar Sands, depending on the price of oil. All of the benefits of this go to only the 35th largest population in the world, and only 228th highest in population density.

The best comparison is not to the US as a whole but to Alaska which has the 4th highest median income in the nation but only the 47th highest population.

Again there is simply no way to meaningfully compare the two countries' economies.

Posted by: johnmarshall5446 | February 9, 2011 2:26 PM | Report abuse

John Marshall

What you say about Canada's natural recources is true but they did not weather the last financial storm because of them, at least not entirely. Federal policy had significant effect as well.

Posted by: sauerkraut | February 9, 2011 3:02 PM | Report abuse


No, it's true that in a world on the edge of depression, natural resources won't save anyone, because they're not being consumed.

However in any time frame where the economy is working well or even in a recovery stage their economy should perform particularly well. Thanks for the reply.

Posted by: johnmarshall5446 | February 9, 2011 3:44 PM | Report abuse

"Canada's GDP growth has been terrific, but it's based largely on intrinsic aspects of their economy that cannot be duplicated"

Canada grows more or less at the same pace as the United States. On a per capita basis, it has grown somewhat slower since 2000 and since 2007.

Canada grew at an 1.87% annual pace from 2000Q1-2010Q4, vs. 1.80% in the United States. Since 2007Q1? Canada grew 0.60% per year vs. 0.56% in the United States. U.S. quarterly data from the Bureau of Economic Analysis, monthly data from STCA - Statistics Canada. U.S. data in 2005 dollars, Canadian data in 2002 Canadian dollars.

U.S. 2000Q1: $11,043.0 billion
U.S. 2007Q1: $13,089.3 billion
U.S. 2010Q1: $13,382.6 billion

CAN 2000Mar: $1,018.5 billion
CAN 2007Mar: $1,213.5 billion
CAN 2010Nov: $1,242.9 billion

Population growth from 2000-2010 was 0.95% per year in the United States, vs. 1.07% in Canada. From 2007-2010, the American population grew 0.92% vs. 1.19% growth in Canada. Data from IMF. Note that the IMF data for the U.S. is stale - uses census bureau projections rather than 2010 actuals.

U.S. Population 2000: 282.2 million
U.S. Population 2007: 301.9 million
U.S. Population 2010: 310.2 million

Can Population 2000: 30.6 million
Can Population 2007: 32.8 million
Can Population 2010: 34.0 million

It doesn't take much math to see that the U.S. grew somewhat faster than Canada on a per capita basis since 2000 and since 2007.

The IMF has Canada's 2009 GDP at purchasing power parity (international dollars) at $1,278.4 billion. It had the U.S. at $14,119.05 billion. Using the 2009 population values, and we can calculate GDP per capita of $45,900 in the U.S. vs. $37,900 in Canada in 2009.

Whether you use GDP per capita or GDP growth per capita, the U.S. is ahead of Canada.

"The doesn't even mention the potential of the Tar Sands, depending on the price of oil. All of the benefits of this go to only the 35th largest population in the world, and only 228th highest in population density."

Certainly a fair point.

Posted by: justin84 | February 9, 2011 4:24 PM | Report abuse

That last U.S. 2010 GDP value was for Q4, not Q1.

Posted by: justin84 | February 9, 2011 4:27 PM | Report abuse

I'm not persuaded that we understand fully the various ways in which pumping dollars in quantity out of the Fed may stimulate inflation over time. At the moment, it doesn't seem to be driving American consumers' prices higher, and long-term interest rates aren't responding in a dramatic way. Do we know it isn't helping to drive up prices for agricultural commodities traded in global markets? What about the world price of oil, which is typically valued in dollars? I understand we haven't seen price inflation here yet. I'm not confident we won't see it soon.

Moreover, the item here looks past the whole reason Bernanke felt compelled to do another round of quantitative easing: Congress wasn't acting, and won't act, to stimulate employment directly. "QE2" is best understood as an act of desperation on the Fed's part.

That's a hard sell to Budget Committee Republicans, convinced that giving more tax cuts to their largest campaign contributors is all that's needed to get the economy humming again.

Posted by: jbritt3 | February 9, 2011 5:05 PM | Report abuse

The Republicans' only goal is to shovel as much cash as quickly as possible possible to the ethically bankrupt, terminally greedy pond scum corporations that prop up the GOP - screw the poor, the elderly, and the infirm and ANYONE who doesn't make enough money to be a Republican. May they all rot in hell in 2012. Kill all the social programs that people depend upon to survive, but by God make sure the top 2% of this country get their tax cuts! Republicans = weasels one and all.

Posted by: Bushwhacked1 | February 9, 2011 5:52 PM | Report abuse


I know better than to try to go against you number for number! I concede that I overstated the point.

Posted by: johnmarshall5446 | February 9, 2011 6:47 PM | Report abuse

Sex Scandal Might Bring Down John Boehner

Banking On Fraud

Still Banking on Fraud | Dollars & Sense

Reforms Fail to address the “control fraud” that caused the financial crisis. By William K. Black

A truly amazing thing has happened in banking. After the worst financial crisis in 75 years sparked the “Great Recession,” we have

* Failed to identify the real causes of the crisis
* Failed to fix the defects that caused the crisis
* Failed to hold the CEOs, professionals, and anti-regulators who caused the crisis accountable—even when they committed fraud
* Bailed out the largest and worst financial firms with massive public funds
* Covered up banking losses and failures—impairing any economic recovery
* Degraded our integrity and made the banking system even more encouraging of fraud
* Refused to follow policies that have proved extremely successful in past crises
* Made the systemically dangerous megabanks even more dangerous
* Made our financial system even more parasitic, harming the real economy

And pronounced this travesty a brilliant success

Where is the FBI and a Grand Jury???


The Bush/Cheney Wall Street Bank Fraud on Consumers(millions out of work)
Yes, substantial fraud was involved. For example, mortgage companies and banks used deceit to get people to take on mortgages when there was no possibility that the borrowers would be able to meet the payments. Not only was this fraud, but this fraud depended on government authorities(Bush admin) ignoring their regulatory responsibilities."

Only 3 major Financial Institutions were at risk in spite of what we’re told ?
"There were just a handful of institutions that were terribly weakened. AIG the insurer, Bank of America and Citigroup, \Those three were clearly in very weakened form. Many of the other big banks simply were not.

Where is the FBI and a Grand Jury???

Posted by: rheckler2002 | February 9, 2011 7:05 PM | Report abuse

"I know better than to try to go against you number for number! I concede that I overstated the point."

I wanted to point out that your case was stronger than you thought. Not only does Canada get a nice boost given its natural resource to population ratio vis-a-vis the United States, it already wasn't leaving the United States in the dust from a GDP per capita perspective, at least not during the past decade, and not even during the last recession.

Posted by: justin84 | February 9, 2011 7:13 PM | Report abuse

"Where is the FBI and a Grand Jury???"

Caveat Emptor will do most people a lot more good than hoping the Feds get in on the case.

Take this:

"For example, mortgage companies and banks used deceit to get people to take on mortgages when there was no possibility that the borrowers would be able to meet the payments. Not only was this fraud, but this fraud depended on government authorities(Bush admin) ignoring their regulatory responsibilities."

As bad as fraud is, this shouldn't be the type of thing catching most home buyers off guard. As it was, there was also a lot of fraud running in the other direction. But lets consider bank to consumer fraud.

People spend tons of time researching HDTVs and cars, but somehow can't figure out if the monthly payment fits in their budget, or if there is a risk that the monthly payment can change?

It isn't rocket science. If you earn $4,000/mo before taxes, the $2,600/mo mortgage payment will eat you alive. Or the $1,300/mo payment might be okay, but the banker called it an ARM - might want to fire up the 'ol Google and see what that means and how it might affect you. Oh, after several resets that $1,300/mo payment might turn into a $2,600/mo payment? Okay, pass.

Today it's easier than ever before - there are mortgage calculators online if you can't do the math yourself.

Now there are always going to be people who will make egregious errors, but trust me, if you leave people to their own devices and tell them that no one's looking after them but them, most people will spend a little bit more time on these types of decisons and far fewer people will be taken. All the regulation and watchdog agencies seemed to have, more or less, provided a false sense of security.

Posted by: justin84 | February 9, 2011 7:28 PM | Report abuse


Perhaps you saw late today that the Chinese deal with Encana, the major Candian natural gas company was finished to the tune of 5 billion.

Now the REALLY interesting question is can the Canadian legislature structure its tax revenues to piggyback on the exploitation of it's natural resources while at the same time lowering it's individual burden in a dramatic way.

Posted by: johnmarshall5446 | February 9, 2011 10:19 PM | Report abuse

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