What an awful few days for news. Public option gutted. Bernanke confirmed. Medicare buy-in dead.
Matt Yglesias has it right. Here too.
There is more Bernanke could do. $1 trillion more of QE would certainly lower the value of the dollar and reduce long-term interest rates, and probably also increase asset values generally and improve banks’ balance sheets.
What nobody asked Bernanke was why, if his Fed projects 1.7 inflation for 2010, and unemployment to be 9.3-9.7% at the end of 2010, WTF isn’t he doing more?
And, WTF can’t anyone ask him this? What’s the reasoning?
As best I can tell, there is no good answer. Some say “well, the Fed can’t really do more” but this is false, for reasons I've already hashed out. Others say “hey, inflation will accelerate..” but we’ve been hearing this for nearly a year now, and the Core CPI in November was… unchanged from October. October’s rate was … up .2%. These aren’t hyperinflation numbers. If the core rate had come in at up .3 or .4%, my policy position would be to wait and see what happens next month before advocating much more QE (although I would probably still want a bit more than is being done). But even w/ a negative surprise in the core CPI rate, I don't see the Fed making its position substantially more accomodative. And, since Bernanke's Fed is the one predicting low inflation, he can't really use this excuse now, can he?
Also, if you read Bernanke’s actual academic papers, they range from OK to mediocre to f*cking terrible. His Congressional testimonies aren’t flukes — despite the H on the resume, the guy just isn’t that sharp.
The die is cast. I'm going to put my reputation on the line and predict that the US is in for an unnecessarily long unemployment slump... We may not get back under 5% unemployment until Obama is out of office...
W/love, Thorstein Veblen
36 minutes ago