Here's something you don't see every day: A Republican-appointed Federal Reserve Chairman telling Congress to spend more money.
Well, not exactly -- but Ben Bernanke on Thursday urged Congress to give him a hand boosting the sluggish economy, which would involve avoiding massive spending cuts and tax increases scheduled to take place at the start of 2013.
The damage this double dose of austerity could do to the economy would likely swamp any stimulus the Fed might be able to throw at it with monetary policy, he warned in response to questioning during testimony before the Joint Economic Committee Thursday morning. In fact, Congress should get on the stick and start doing its part to help the economy now with fiscal stimulus, he suggested.
"Monetary policy is not a panacea. It would be much better to have a broad-based policy effort addressing a whole variety of issues," he said. "I would be much more comfortable if in fact Congress would take some of this burden from us and address those issues."
Bernanke's comments came as financial markets waited breathlessly to see if he would promise a third round of quantitative easing, or bond purchases, to boost the economy. The U.S. stock market enjoyed its biggest rally of the year on Wednesday partly on hopes that Bernanke would promise QE3 after a series of disappointing employment reports and amid Europe's ongoing debt crisis.
Bernanke disappointed them. He promised no new stimulus, and instead pressed Congress to deal with the so-called "fiscal cliff" of spending cuts and tax increases, looming just months away.
"All of these measures together, if they all occur, will amount to a withdrawal of spending and an increase of taxation, depending on how you count, between 3 and 5 percent of GDP," he warned, "which would have a very significant impact on the near-term recovery, whatever benefits you might see in those programs in the very long term."
He declined to suggest which combination of spending increases and tax cuts lawmakers might want to undertake, but he warned them that they had just months to act before the economy fell off the fiscal cliff. Congress imposed the automatic austerity measures on the country last year as punishment for Congress's own failure to come up with a long-term plan to cut deficits. They have about six months to act, or the entire country will pay for Congress's sins.
"What is particularly striking here is that this is all preprogrammed," Bernanke told the frequently vacationing Congress. "If you all go on vacation it's still going to happen."
What about jobs? Here are 13 ways to stimulate job growth: