Those who listened to Bernanke's three hour oratory before the House Committee today noticed something different: the Chairman's tone was far more resigned, and as noted previously [9], on occasion devolved into incoherent, illogical ramblings that may be satisfactory for an introductory economics class at Clown College (aka Princeton [10]), but certainly are inappropriate for the man who runs the world's most important printer.
And while as expected the bulk of the Q&A session focused on the sequester, there were enough pearls one could shake a GDP hockeystick at. We have extracted the best of these exchanges below. However, the definitive five minutes comes from this fiery confrontation between Sean Duffy and the Chairman, in which the republican has obviously had enough with the monetary policy chief coming in Congress and telling Congress how to conduct fiscal policy, when it is Bernanke's deficit-monetizing actions that allow zero-cost borrowing and thus profligate, indiscriminate spending to result in such lunacy as total US debt just hitting a record 16,618,701,810,927.77 [11].
From the negative jobs impact resulting from cutting Moroccan Pottery Classes, no longer handing out Obamaphones, stopping the payment of travel expenses for the watermelon queen in Alabama, and most importantly preventing shrimp from running on a treadmill, to Bernanke explaining how a 2% cut in the budget would result in mass mayhem, in the context of a 1% interest rise resulting in $100 billion in additional interest expense, and much, much more, the Chairman ties it all together.
And much more:
On having tamed inflation:
MCHENRY: So to this point about inflation, many of us have this concern about how you're going to unwind this unprecedented portfolio that -- that you preside over or how your successor will unwind this or your successor's successor.
And the concern that we have is that you only can see inflation with hindsight. And the question I have to you is, with -- with the record of the 1970s, where in 1973, expected inflation was 3.75 percent -- that was a market expectation -- the Feds said 3.9 percent. The actual was 6.2 percent. 1974 inspected inflation was predicted at 6.7 percent. The Feds said 8 percent. Yet, the actual inflation was 11 percent. 1979, inspected was 7.3 percent. Feds said 7.5 percent -- actual was 11.3 percent. 1980, expected inflation was predicted at 11 -- 11 percent. The Feds said 7.5 percent, yet the actual was 13.5 percent.
The Fed has consistently gotten it wrong. Are your tools better now to see inflation than they were then when we had this great period of inflation?
BERNANKE: Our tools are better. But the environment is much better, because we now have 25 years of success in keeping inflation low and stable, not just in the United States but around the world. Inflation expectations are very well anchored, and wages are very -- growing very slowly.
Well, actually no:
[12]
"You Can Have It Both Ways"
GARRETT: With regard to the positive indications that you've indicated, you said the stock market and the housing market have gone up because of your monetary policy. But previously you have said that the Fed's monetary policy actions earlier this decade, 2003 to 2005, did not contribute to the housing bubble in the U.S.
So which is it? Is monetary policy by the Fed not a cause of inflationary prices of housing, as you said in the past? Or is it a cause of inflating prices of housing? Can you have it both ways?
BERNANKE: Yes.
The "Saver Has Many Hats": Apparently One Of Them Is Not To Save And To Invest In A Market That Has Doubled
CAPITO: You mentioned gas prices as a reason that's hurting our economy in general and certainly all of our constituents are feeling this very much. I think energy economy there again could answer in -- in a small way, and maybe a large way, the issue of gasoline as we move towards energy independence, so, you know, I would like to hear you talk about the energy economy more as part of our broader economy because I think it -- you said it's a bright spot, let's feature it as a way to pull ourselves out -- out of a slower recovery. So I would encourage you to do that.
My other question is on seniors. Many of us are in that sandwich generation trying to help our parents, and our parents are doing a pretty good job trying to help themselves.
But they're relying on their good planning and investments, if they've been lucky enough to invest. And the dividend and interest availabilities to them are crushing our seniors, as they see their health care costs go up. And some of the policies that -- that you've put forward I think and that -- and that the Fed has, has caused concern for those of us who are concerned about seniors who don't have the ability to get another job, can't -- you know, that's played out for them.
What -- what can I tell my seniors back home that is gonna give them some optimism that they're gonna be able to rely on that good planning that they had to carry them through to their senior years?
BERNANKE: Well, I'd say first that savers have many hats. They may own fixed income instruments, like bonds, but they also may own stocks or a house or a business. All of those other assets benefit when the economy strengthens.
BERNANKE: And those values have gone up, the stock market has roughly doubled, as you know, in the past few years. So from an investment perspective, there are alternatives.
Finally, contrary to prior confusion Bernanke does NOT offer financial planning seminars to 90 year olds
GARRETT: So the other area you indicated why we should say your policies are working in a cost-benefit analysis is the stock market. I'm sure you're familiar with Milton Friedman's work that says that people only really consume off of their permanent income, which basically means that you don't increase consumption because your stocks have gone up in the marketplace.
And to that point, I know Ms. Capito asked the question as to what seniors should do in this indication, and you said, "Well, take it out of some fixed assets and put it into the stock market." Heaven forbid that my 90-year-old mother would take her money out of fixed markets and put it in the stock market. I think that's probably the worst advice that's out there.
And when you consider that a 1 percent increase in the stock market only has infinitesimal, maybe one-hundredth percent increase in the GDP, I really don't understand, A, how you can give that advice; or B, how you can suggest that the increase in the stock market is a positive indicator of your work in a cost-benefit analysis of the rest of the economy.
BERNANKE: I was not giving financial advice. I apologize if I gave that impression. I was just saying that...
GARRETT: (inaudible) asking -- asking you the question: What should -- what should we be doing in the benefit to the seniors? What shall we say to the seniors? And your advice -- your comment was...
BERNANKE: My advice -- what I was saying was that the economy will get stronger because of good policies, and that, in turn, will cause rates to rise in a sustainable way. If we were to raise rates prematurely, we would kill the recovery and rates would come down and we would have a long-term situation with very low rates.
GARRETT: But would you -- wouldn't you have, A, provided for the certainty in the marketplace so you could have more price transparency? Earlier, you said that some risk-taking in the market is appropriate. That was one of your opening comments. Sure, risk- taking is appropriate, but appropriate when there is actual price discovery. When you have a market that is distorted as it is right now by the -- by the Fed's monetary policy, you really don't have true price discovery.
And so when you do risk-taking now, it's based upon not really knowing what the appropriate value is of land prices, equity market prices are. So risk-taking now is worse than risk-taking is when the Fed's actions do not distort the marketplace.
HENSARLING: The time of the gentleman has expired.