Breaking news: officials in our U.S. Federal Government do not know how to solve all our woes.
This actually shouldn’t be “news.” Leaders from none other than the Federal Reserve, itself, have repeatedly admitted this in recent months.
Fed Chairman Ben Bernanke has admitted this multiple times, and in a variety of different contexts (a point I’ll review momentarily). But last Wednesday, the President and C.E.O. of the Federal Reserve Bank of Dallas reiterated this point himself, and his announcements have largely been ignored.
In a Speech before the Harvard Club of New York City, bank President Richard Foster publicly restated his opposition to the Fed’s recent decision to launch “QE3,” its third attempt in three years to use monetary policy to stimulate the economy. Foster began his speech noting that “with each program we undertake to venture further in that direction (in the direction of using monetary policy as stimulus), we are sailing deeper into uncharted waters. We are blessed at the Fed with sophisticated econometric models and superb analysts. We can easily conjure up plausible theories as to what we will do when it comes to our next tack or eventually reversing course. The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy.”
Later in the speech, Mr. Foster noted that our economy “is already flush with $1.6 trillion in excess private bank reserves owned by the banking sector and held by the 12 Federal Reserve Banks. Trillions more are sitting on the sidelines in corporate coffers. On top of all that, a significant amount of underemployed cash—or fuel for investment—is burning a hole in the pockets of money market funds and other non-depository financial operators. This begs the question: Why would the Fed provision to shovel billions in additional liquidity into the economy’s boiler when so much is presently lying fallow?”
The economy is being held back despite trillions of dollars “lying fallow,” and the highly educated experts at the Federal Reserve can’t figure out why. Mr. Foster deserves our thanks for being so truthful – yet we should all be concerned about his observations.
Of course, it was only three months ago when Chairman Ben Bernanke admitted that he had “no idea” why our economy is so “fragile.” This is the man who has overseen the lending of more than $3 trillion American taxpayer dollars to foreign banks; the rapid-fire acquisition of the former giant Merrill Lynch by the gargantuan Bank of America; the multi-billion dollar taxpayer bailout of Wall Street; and – although he craft legislation or sign bills in to law, he nonetheless supported the $800 billion “economic stimulus bill” from the Congress and the Obama Administration.
And after all that – and before the latest stimulus effort announced less than two weeks ago – the Fed Chairman nonetheless admits that he has “no idea” what is wrong with our economy.
The talent, econometric models, and superb analysts at the Federal Reserve notwithstanding, Americans of all stripes need to come to grips with some basic economic realities.