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.