The Bernanke speech on friday was not so much nuanced as non existent. The guts of it came down to the statement that the Fed would have a longer meeting to think it all through again on 20-21 September. The conclusion was:
“The Committee will continue to assess the economic outlook in the light of incoming information (i.e. do what it is paid to do and always does) and is prepared to employ its tools as appropriate to promote a stronger recovery in a context of price stability”
Of course. But how? When? What can it do? Which tools might work? Which tools might just create more inflation?
The Chairman did also have some interesting sideswipes at others involved in economic policy. It was a humble address, underplaying the importance of monetary policy. Mr Bernanke passed the two bad balls of high unemployment and a weak housing market swiftly back the politicians. They needed to fix those things,then we can have a great recovery. You don’t say!
The media found the most interesting thing about the speech was the implied criticism of the politicians on both sides of the Atalntic. Whilst Mr Bernanke expressed the assurance that Euroland leaders would sort out their own mess, he did not suggest they had already done so or were not in a mess at the moment.
He was bolder nearer at home. He stated baldly for a grand official: “The negotiations which took place over the summer (about the US debt and deficit) disrupted financisal markets and probably the economy as well”. In a genuflection to his ultimate boss, the President, he said the US could make itself fiscally prudent over the longer term with a suitable deficit plan, but did not need to do so in the short term as long as the intended cuts were clearly set out for the future.
That’s alright then. Mr Obama can carry on spending until the election. Euroland will get out its magic wand after a long period of keeping it in hibernation. US policymakers will suddenly fix the broken housing market. The long term unemployed will come streaming back into work as a result of trying that well know Obama recovery spell one more time.
The BBC Today programme kindly invited me on to discuss whether this all means the politicians are to blame after all, and the Central bankers are off the hook. I tried to explain that there is no such thing as an independent central bank in a democracy. The elected officials are ultimately resposnible, they set up and change the system, and they intervene in extreme circumstances or when there is strong pressure for them to do so. I agreed that the lack of political direction on the debt and deficit in the US over the summer had been unhelpful. I confirmed that in Euroland the absence of an economic sovereign with authority and wisdom was causing serious damage. I pointed out that in the UK the promise of easy money from the Bank and tight fiscal policy from the Treasury has so far been delivered by neither side. We have tight money and large borrowings.