{"id":9145,"date":"2010-04-09T18:52:02","date_gmt":"2010-04-09T07:52:02","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=9145"},"modified":"2010-04-09T18:52:02","modified_gmt":"2010-04-09T07:52:02","slug":"us-federal-reserve-governor-is-part-of-the-problem","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=9145","title":{"rendered":"US federal reserve governor is part of the problem"},"content":{"rendered":"

\t\t\t\tThe Federal Reserve Chairman Ben Bernanke gave a speech entitled – Economic Challenges: Past, Present, and Future<\/a> – on April 7, 2010 in Texas. It emphatically demonstrated why he should never have been appointed to the position he is in and why his reappointment just compounds that initial mistake. While he has been largely quiet on fiscal matters over the last few years this speech outlines without doubt that he doesn’t really understand the monetary system he supervises and has an understanding that is seemingly limited to that found in any erroneous mainstream macroeconomics text book. The only other interpretation is that he does understand the system yet chooses to deliberately deceive the wider public so as he can support ideological attacks on government activity. Either way, he is part of the problem we face.
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\nBernanke notes at the outset that while “(d)uring some of the worst phases of the crisis, a new depression seemed a real possibility … today the financial crisis looks to be mostly behind us, and the economy seems to have stabilized and is beginning to grow again”. I think that is a fair assessment.<\/p>\n

But as he notes “we are far from being out of the woods”, many people everywhere “are still grappling with unemployment or foreclosure, or both. Cities and states are struggling to maintain essential services. And, although much of the financial system is functioning more or less normally, bank lending remains very weak, threatening the ability of small businesses to finance expansion and new hiring”.<\/p>\n

So that all sounds to me as though there is a continuing need for expanded fiscal support to ensure that all those who want to work can find employment and generate the income necessary to keep paying their debts. While the sub-prime mortgage crisis started to impact in the second-half of 2007, which was prior to the escalation in unemployment in early 2008, the latter drove the former through 2008 and 2009.<\/p>\n

This Washington Post article<\/a> from 2009 says:<\/p>\n

\nThe country’s growing unemployment is overtaking subprime mortgages as the main driver of foreclosures, according to bankers and economists, threatening to send even higher the number of borrowers who will lose their homes and making the foreclosure crisis far more complicated to unwind … During the first three months of this year, the largest share of foreclosures shifted from subprime loans to prime loans, according to the Mortgage Bankers Association. The change to prime loans — traditionally considered safer — reflects the growing numbers of unemployed who are being caught up in the foreclosure process, economists say.\n<\/p><\/blockquote>\n

So the initial crisis would have been significantly attenuated had the government put a ceiling on the rising unemployment. Once a growing number of people could no longer afford to pay their commitments the mortgage crisis escalated. The failure of the US government (and almost all national governments) to prevent the rise in unemployment via appropriate fiscal expansion targeted at job creation caused the crisis to persist.<\/p>\n

Bernanke’s speech was focused on “the origins of the financial crisis and economic downturn, with a particular focus on the policy response of my institution, the Federal Reserve … [and the] … near-term and longer-term challenges facing our country”.<\/p>\n

I won’t say much about his view on the origins of the crisis. By way of summary he thinks:<\/p>\n