Kudos to Dr. Sherry Cooper, Executive Vice President and Chief Economist, BMO Financial Group. She read Ben Bernanke's ECB address in Germany on Friday and discovered that the inventor of Quantitative Easing I and II admitted that his monetary policy may not assure economic recovery -- what his critics have been carping about or weeks now.
Unnoticed by most was Bernanke's carefully phrased suggestion that a further fiscal stimulus is necessary. And since no one has a finer view of the unfolding economic scenario, we ought to take the Fed Chairman's warning as deadly serious.
"The Federal Reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs," Bernanke stated. "However, in general terms, a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve."
Clearly, Bernanke has doubts that the $600 billion program to purchase securities may not properly affect the yields on acquired securities and "via substitution effects in investors' portfolios, on a wider range of assets." Stunning, that admission.
He also chose last Friday at the ECB to retreat on the notion that "quantitative easing" is the accurate term to use in describing Fed policy. Extraordinary that he was backing off the phrasing used to describe his policy. Wow!
Clearly, Bernanke is worried about longer-term unemployment becoming "intractable long-term structural unemployment." He reckons it "could threaten the strength and sustainability of the recovery."
Shocking that there has been no appropriate clamor at the White House, at Treasury, on Wall Street, in Congress, on cable TV -- to motivate public opinion for another fiscal stimulus. No matter what the Republican nabobs say, this is one of the most overlooked issues of our time.
Household net worth is over $12 trillion less -- yes, that's $12 trillion -- than it was 3 years ago -- a shocking, rocking, sickening loss of 18.5% of household net worth. Wake up everyone. The Fed Chairman has come clean about prospects.
For more insight into Bernanke's controversial policy, you would be wise to read Stephen Robert's column examining the fallacy of QE2 and fingering other troubling ramifications of it. Robert is the former Chairman and CEO of the Oppenheimer group of mutual funds.
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