Boneless Bernanke: Why Ben Has to Blow Smoke on Capitol Hill

Ever wonder why Fed Chairman Ben Bernanke seems to be living in a different economy than you are? All this happyspeak about no recession, prosperity just around corner, inflation about to come down, etc?

Barry Ritholz explains why a PhD like Ben has to sound like Prozac-infused pollyanna every time he gets near a microphone:

If the Fed were to come clean about the present circumstances, it would cause a market panic. That's why we get this very gradual shift in assessments, all designed to be somewhat reassuring as it slowly feeds measured dollops of reality into the marketplace.

Yesterday's dovish congressional testimony from Bernanke (and in Vice Chair Don Kohn's speech the day prior) will be continued today. It is, as it has always been and always will be.

Why? Imagine if the Fed Chair told the unvarnished truth: The Dow would see a 1,000 point intra-day drop.

I'm sure Barry's right that that's the logic Ben uses when he crafts his happyspeak. But when the chips are actually down (as they are) Americans are a tough lot. One of these days, I think the country would actually benefit from hearing the truth.

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Comments

[Wiredwilly]

11:47 PM on 02/29/2008

I had to laugh about the " if the Fed were to come clean about present circumstances, it would cause a Market panic " . If the Fed were to come clean, it would start a Revolution.

[MilwaukeeDan]

09:02 AM on 02/29/2008

Ben Bernanke is not stupid, Barry Ritholz is exactly right, they don't want to shock the system with reality, they want to let it die as slow as possible, that way the big players get out in time. Americans would panic if they woke up and found out gasoline went up $1.00 per gallon, but streach that dollar raise over six months and they'll eat it up, no complaints.

[dolphy]

02:12 AM on 02/29/2008

This is bigger than stagflation. This will almost be like the early 30's. This happens every time the wealth is not evenly distributed enough between the very rich and the workers/consumers. We are approaching the status of a third world nation where people take any job they can because they are resigned to the fact that if they get too picky, they will end up with nothing. However, in a third world country, the governments back up the corporations with the military. If the people start to revolt, they just get rid of the leaders and the suffering just goes on and on. I hope Americans will not be just bystanders and let this happen.

[PacificGatePost]

02:11 AM on 02/29/2008

There are solutions to the mess called the Bush legacy:


http://pacificgatepost.blogspot.com/2008/02/rebounding-us-economy.html


It's time to plug the drain on the $45 trillion + combined national debt sinking the morale and determination of middle America.
The tax paying middle class will have to go it alone and it's going to be a long hard road. It needs to start ASAP and as much pressure should be placed on Congress by the media as it can possibly muster. Congress might now be listening.

[bushisanAhole]

11:58 PM on 02/28/2008

either way its sad - ben the idiot is either too stupid to see what many of us knew a year ago, or they are well aware, or maybe even helping the economy into the shitter. If you've got a lot of money and are investing overseas, like cheney has been doing for years, you can benefit greatly from the economy crashing, which it will in the next year or so. Just wait until the foreclosures really get going.

[Veri]

11:24 PM on 02/28/2008

No. I do not wonder why Bernanke blows smoke up Congress' collective ass. He has money, lives in an Ivory Tower, and does what his masters tell him to do.

[Rule Of Law]

04:20 PM on 02/28/2008

The only thing holding the corporate meat puppet, Bernanke, up, is Greenspans fist!

[Hoelder]

03:25 PM on 02/28/2008

BOOHOO. Where do you draw the line, if every reasonable person has known for more than a year what the state of the economy is? If markets are so dependent on the amount of Prozac he or she takes. Lets keep up appearances, then the thud would be less painful. It's like a nurse asking to rip the band aid off in multiple small ouches or one long scream. President Bush adds another failed business venture to his resume, that the Republicans should have read before voting for him. Inflation is the bill the lower classes pay for the super rich who lived beyond their means or need to pay for their 6th vacation home. Of course they will bail. Leaving us with the pain.

[SamThornton]

02:46 PM on 02/28/2008

The one word Mr. Beranke fears the most at this point is "stagflation." Unfortunately, it appears that the twin horses of financial apocalypse, Inflation and Stagnation, are thundering on the economic horizon no matter how firmly he adjusts his blinders.

If you were around when we last faced stagflation -- again, a result of huge deficits spent on another futile war -- the name "Paul Volcker" probably rings a bell.

From Mr. Volcker's entry on Wikipedia (http://tinyurl.com/2jn2oy):

"Paul Volcker was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.[2] Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s by limiting the growth of the money supply, abandoning the previous policy of targeting interest rates. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983. The change in policy contributed to the significant recession the U.S. economy experienced in the early 1980s, which included the highest unemployment levels since the Great Depression.

"However, Volcker's Fed also elicited the strongest political attacks and most wide-spread protests in the history of the Federal Reserve (unlike any protests experienced since 1922) due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street and blockading the Eccles Building."

It's deja vu all over again for us old-timers.

[Rule Of Law]

04:23 PM on 02/28/2008

And, according to some of the biggest corporate CEO's of the time, led to the the destruction of the manufacturing base in America, the offshoring of millions of jobs, and the institutionalization of deficit spending and Federal Debt that have led directly to this day!

[mrcontinental]

10:49 AM on 03/03/2008

That's exactly what it did RoL. And it was done intentionally.