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Wonkbook: What Bernanke should say today

By Ezra Klein,

Brendan Smialowski BLOOMBERG Ben S. Bernanke, chairman of the U.S. Federal Reserve, speaks during his semiannual report on monetary policy to the Senate Banking Committee on July 14 in Washington, D.C. Back in April, I wrote a column entitled "What Bernanke should've said." It was an effort to imagine the Chairman of Federal Reserve's first news conference, if that news conference happened after a couple glasses of scotch and in a moment of unusual personal empowerment. The difference between then and now is that unemployment has risen from 8.8 percent to 9.1 percent, Rick Perry has threatened mob violence and we've moved more firmly towards austerity. That is to say, this is what Bernanke should say, now more than ever, and what he's unlikely to say, now more than ever. So in anticipation of the central banker's big speech today -- and scroll down in Wonkbook for more on that -- here are excerpts from that column:

"I have a lot of power. But I’m not a dictator. The Federal Reserve’s Open Market Committee has 12 members. If I’m being generous, five or six of them seriously understand how bad things are right now. And outside these walls, a guy who wrote a book called 'End the Fed' now chairs the House committee that oversees us. Sarah Palin appears to be developing strong and incoherent views on monetary policy. Paul Ryan dabbles in this stuff. If I went public with what really needs to be done — buying bonds related to the real economy rather than Treasury bonds, paying a negative rate on bank reserves so they move the money we’ve given them out of our coffers and into the labor market, doing price-level targeting so we make up for the years of sub-2 percent inflation with a few years where inflation is above 2 percent — I’d be strung up tomorrow. I’d go from having the freedom to talk half-measures to maybe — maybe! — having the freedom to take quarter-measures."

"And that’s fine. I understand why people are freaked out by the idea of some group of bearded economists getting together to decide what’s going to happen in the economy next year. But you know when exactly you get bearded economists making the big decisions? When Congress becomes too paralyzed and polarized to make them itself. I mean, good Lord. The division of labor here is — or at least is supposed to be — that the Federal Reserve holds interest rates down while Congress spends money to stimulate the economy. Then, in a few years, when the economy is working again, we begin tightening and they begin reducing the deficit. That’s what Japan should’ve done. In fact, I got hired for this job because I was one of the people telling Japan to do it. And now we should be doing it. But we’re not. Or, more precisely, Congress is not."

"Somehow, it’s even worse than that. Instead of doing something sensible, or even doing something nonsensical but internally consistent, Congress pretended to turn against the idea of stimulus and against the idea of deficits and then — and this is the part that really pisses me off — passed $850 billion of ineffective stimulus in the form of deficit-financed tax cuts. And it was only $850 billion because the two parties couldn’t decide between the president’s $3.2 trillion in deficit-financed cuts and the GOP’s $4 trillion in deficit-financed tax cuts. So they passed two years of the Bush tax cuts and then some, and we all know that they’re going to pass trillions more in 2012. The total price tag of this will be incredible, none of it will be paid for, and it’s money we could’ve used to stimulate the economy when that stimulus was needed. And then you all have the audacity to whine about the deficit. It’s sickening."

"So, in conclusion, the economy is terrible, we should be doing more, and Congress should be doing much more, but instead we’re going to pretend the economy isn’t that bad, I’m going to pull back so you guys don’t jail me and everyone who works for me, and Congress is going to do the exact opposite of what economic theory and evidence would suggest and cut spending immediately while passing deficit-financed tax cuts for later. Oh, and I haven’t even mentioned the debt ceiling, because if I start cursing and crying, the markets will really freak out."

"With that, I’ll be glad to take your questions."

Five in the morning

1) Ben Bernanke's big speech is today, reports Neil Irwin: "JACKSON, Wyo. - As the world’s central bankers descend on the Grand Tetons for a closely watched annual conference, the mood in Jackson Hole is again one of profound unease...It was here one year ago that Federal Reserve chief Ben S. Bernanke signaled openness to massive bond purchases, here in 2007 that the Fed leaders plotted a response to the budding financial crisis and here in 1990 where the central bankers of the West first met their counterparts from the former Soviet bloc...Bernanke has emphasized before that monetary policy, and by extension central banks, cannot be expected to solve all the world’s problems. He is likely to echo that belief in a closely watched speech to be delivered Friday morning. What central bankers can do is shape monetary policy to offer a steady, reliable backdrop that might allow growth."

@Choire: "I can't believe today's Goldman Sachs US Economics report is called 'Watch Out for Bears in Jackson Hole.'"

2) Political pressure is making the Fed dangerously cautious, writes Paul Krugman: "I’ll be shocked if Mr. Bernanke proposes anything significant — that is, anything likely to make any serious dent in unemployment or offer any serious boost to growth. Why don’t I expect much from Mr. Bernanke? In two words: Rick Perry. O.K., I don’t mean that Mr. Perry, the governor of Texas, is personally standing in the way of effective monetary policy. Not yet, anyway. Instead, I’m using Mr. Perry — who has famously threatened Mr. Bernanke with dire personal consequences if he pursues expansionary monetary policy before the 2012 election — as a symbol of the political intimidation that is killing our last remaining hope for economic recovery...So now you see why I don’t expect any substantive policy announcements at Jackson Hole. Back in 2000, Mr. Bernanke accused the Bank of Japan of suffering from 'self-induced paralysis'; well, now the Fed is suffering from externally induced paralysis. In effect, it has been politically intimidated into standing by while the economy stagnates. And that’s a very, very bad thing."

3) The markets are going to be disappointed by Bernanke's speech, writes Justin Wolfers: "I’m going to be watching for something altogether different. Last year, Ben said that the risk of deflation justified aggressive unconventional monetary policy (aka 'QE2'). That risk has largely disappeared. If he hints that expansionary monetary policy is still a good idea when inflation is positive (albeit low), then we’ve learned that policy really is changing. With inflation so tame, and unemployment out of control, it’s also the right policy. And what about the more radical ideas--Blanchard or Rogoff’s higher inflation target, Sumner’s nominal GDP target, or Mankiw’s price-level target? All good ideas. But I just don’t see ‘em happening. If the markets are looking for this, they’re going to be disappointed. Bottom line: There’s a fair chance that Ben signals a more expansionary monetary policy. But I don’t think it will be in the form the markets are hoping for ('QE3'). This is why I’m betting they’ll be disappointed."

Maybe he'll talk about fiscal policy, writes John Hilsenrath: http://on.wsj.com/nEj6Ic

4) Mitt Romney has taken to campaigning with a debt clock, reports Philip Rucker: "Sure, he’s sometimes stiff. Mitt Romney has a bad rap for being, well, boring. But now he has a flashy new sidekick. Meet the debt clock -- a giant, green, glowing and growing debt clock. Just before the Republican presidential candidate walked into a steamy gymnasium here Thursday for his fourth town hall meeting in two days, the clock reported the national debt at $14,658,049,919,888.88. The average debt per taxpayer was $131,119. Sixty-five minutes later, when he bade farewell to a couple hundred clapping New Hampshire voters, the debt was $14,658,234,132,999.88. That meant $131,121 per taxpayer. Throughout his give-and-take with voters here, Romney engaged with his clock. He gestured at it, bragged about it and was dead serious talking about it."

5) The EU is considering issuing joint "Eurobonds," reports Howard Schneider: "Europe’s ongoing financial crisis is forcing officials to revisit an issue they brushed aside in the heady rush a decade ago to launch the euro as a common currency: how to yoke together their economies and issue common bonds to pay for roads, schools -- and the deficits run by individual member countries. Eurobonds were widely considered a crucial ingredient for any full-fledged monetary union in Europe. But these bonds, which would be backed by all the countries in the euro area, were too politically controversial at the time. The idea has returned as an urgent issue of debate...If Europe’s crisis has proved one thing, it’s that steps considered impossible at one point become urgently needed at another...Some economists, including influential voices in Germany, consider the introduction of a common bond almost inevitable."

Music video interlude: St. Vincent's "Cruel".

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Still to come: Warren Buffett is personally bailing out Bank of America; Obama's jobs plan might target construction; Rick Perry's health care record; the NLRB is requiring employers to let employees know they can unionize; the BP spill that just won't go away; and what a black hole enveloping a star would look like.

Economy

The Obama administration can't refinance your mortgage on its own, writes Ezra Klein: "Most people think that the Obama administration 'owns' Fannie Mae and Freddie Mac, and so it can basically tell them to do whatever it wants. That’s not how it works. The Housing and Economic Recovery Act of 2008 put Fannie Mae and Freddie Mac under the control of the newly created Federal Housing and Finance Authority. The FHFA is not like, say, the Treasury Department. It’s an independent agency, and right now it’s under the care of acting Director Edward DeMarco, a holdover from the Bush administration. Senate Republicans blocked the Obama administration’s nominee, Joe Smith, after he expressed some support for using Fannie Mae and Freddie Mac to heal the housing market. Any plan would either need to go through him or through Congress. And both DeMarco and the Republicans in Congress seem mostly interested in limiting Fannie and Freddie’s short-term losses so they can be spun off from the government."

Warren Buffett is personally bailing out Bank of America, reports Nelson Schwartz: "Warren E. Buffett, the legendary investor, is sinking $5 billion into Bank of America in a bold show of faith in the country’s biggest, and most beleaguered, financial institution. It comes amid deepening worries about the long-term health of the company, which has already had to set aside roughly $20 billion to atone for its mortgage misdeeds at the height of the housing bubble. Bank of America’s problems are emblematic of the economic woes facing the country in general and the housing market in particular. Its fortunes have been waning as the outlook for growth has darkened and the financial markets have gyrated. More than some other large banks, Bank of America’s fate is also heavily intertwined with that of consumers...Even as investors cheered Mr. Buffett’s investment, lifting the bank’s shares more than 9 percent, analysts cautioned that it did not address more fundamental problems that will take years to correct."

Obama's jobs plan might target construction, reports David Nakamura: "President Obama has promised to propose new ideas on how to create jobs in his post-Labor Day address to the nation. What those ideas will be has become a popular guessing game in Washington. White House aides gave some clues Wednesday when they revealed the president had discussed with his Jobs and Competitiveness Council an initiative aimed at having construction workers retrofit commercial buildings to make them more energy efficient. Both Obama and former president Bill Clinton have touted the retrofitting concept as a way to create up to 1 million jobs, according to the Jobs Council. Obama talked about those plans Wednesday on a conference call with General Electric Chief Executive Jeffrey Immelt and American Express Chief Executive Ken Chenault, who co-chair the jobs council, said deputy White House press secretary Josh Earnest."

Major Republicans are lukewarm on the payroll tax cut, reports Jennifer Steinhauer: "'All tax relief is not created equal,' said Brad Dayspring, a spokesman for Representative Eric Cantor of Virginia, the House majority leader. 'If the goal is job creation, Leader Cantor has long believed that there are better ways to grow the economy and create jobs than temporary payroll tax relief.'...Mitt Romney, the former governor of Massachusetts, last year wrote in an opinion article for USA Today that the payroll tax cut 'will add to the deficit.' But in a recent interview with Fox TV, he softened that, saying, 'I’m all in favor of keeping taxes down and keeping burdens down on American businesses and employers.'...A spokesman for Grover Norquist, who as leader of Americans for Tax Reform is the author of a no-tax-increase pledge that scores of Congressional Republicans have signed, expressed ambivalence about the cut."

Free trade agreements are still in limbo, reports Jennifer Steinhauer: "Even with almost zero common ground between them, President Obama and Republicans in Congress generally concur on the need for free-trade agreements with South Korea, Colombia and Panama. But they disagree on whose fault it is that those agreements -- years in the making -- have still not been approved. For weeks, President Obama has derided Congress for failing to pass the agreements, as well as a measure that would provide money to assist workers displaced by foreign competition...Senior Republicans in Congress have howled in protest, pointing out that the agreements have not left the president’s desk to journey to the Hill for a vote...That Congressional Republicans and the president cannot even agree on the status of these critical trade agreements reflects just how toxic and divisive their relationship is, anchored largely in fiscal policy disagreements."

GOP presidential candidates are listening to employers rather than the unemployed, reports Philip Rucker: "Mitt Romney is campaigning to be the jobs president, and for now, that means a lot of listening. Listening at board table after board table to his invited attendees bemoan what’s wrong with the federal government...By the time the 50-minute session was over, Romney hadn’t heard from anyone who is unemployed, underemployed or simply clocks in for a working wage every day. The scene isn’t much different with the other leading Republican candidates...The contenders in the GOP field appear to be spending most of their time with those they think could be the solution to the country’s economic hardship (business owners) rather than those who are most directly experiencing the hardship (people out of work)."

The markets are going to be disappointed by Bernanke's speech, writes Justin Wolfers: "I’m going to be watching for something altogether different. Last year, Ben said that the risk of deflation justified aggressive unconventional monetary policy (aka 'QE2'). That risk has largely disappeared. If he hints that expansionary monetary policy is still a good idea when inflation is positive (albeit low), then we’ve learned that policy really is changing. With inflation so tame, and unemployment out of control, it’s also the right policy. And what about the more radical ideas--Blanchard or Rogoff’s higher inflation target, Sumner’s nominal GDP target, or Mankiw’s price-level target? All good ideas. But I just don’t see ‘em happening. If the markets are looking for this, they’re going to be disappointed. Bottom line: There’s a fair chance that Ben signals a more expansionary monetary policy. But I don’t think it will be in the form the markets are hoping for ('QE3'). This is why I’m betting they’ll be disappointed."

Movie montage interlude: All 50 of Cher's outfits in "Clueless," in one minute.

Health Care

Rick Perry's health policy initiatives have been repeatedly rejected by Washington, reports Sarah Kliff: "Texas has 16 Medicaid waivers, which is pretty much on par with other states its size (California, for example, has 23 while Florida has 19). But the most interesting waivers are the ones it doesn’t have. In 2008, Texas applied for a waiver that, among other things, would limit the number of beneficiaries and create a new, very sparse benefits plan. The Bush administration rejected that waiver request. There was 'no precedent,' an administration official said in a letter explaining the decision, to approve an 'annual benefit limit as low as' the Perry administration proposed. This year, Perry signed a law that compels Texas to apply for block grant Medicaid funding. The idea is that Texas would accept a capped amount of federal funding in return for more flexibility on how to spend this money. But that proposal is likely to hit a dead end in Washington, too."

Half of adults will be obese within twenty years, reports Jennifer Huget: "Based on trends, half of the adults in the United States will be obese by 2030 unless the government makes changing the food environment a policy priority, according to a report released Thursday on the international obesity crisis in the British medical journal the Lancet. Those changes include making healthful foods cheaper and less-healthful foods more expensive largely through tax strategies...A team of international public health experts argued that the global obesity crisis will continue to grow worse and add substantial burdens to health-care systems and economies unless governments, international agencies and other major institutions take action to monitor, prevent and control the problem. Changes over the past century in the way food is made and marketed have contributed to the creation of an 'obesogenic' environment in which personal willpower and efforts to maintain a healthful weight are largely impossible, the report noted."

Republican governors are split on how to deal with health reform, reports Jonathan Weisman: "Mississippi this week received $20 million. On Monday, Idaho Republican Gov. Butch Otter announced he will accept federal money to establish an exchange. Last week, a panel appointed by Georgia's Republican governor, Nathan Deal, gave the green light to an exchange. Those states followed Republican governors in Ohio, North Dakota, Nevada, Indiana and Wisconsin. But Kansas's Sam Brownback and Oklahoma's Mary Fallin have returned tens of millions of dollars their Democratic predecessors had already received to build state exchanges. Florida's Rick Scott and Louisiana's Bobby Jindal have said they will not participate, hoping either the Supreme Court or a Republican president will throw the law out before the federal government steps in."

Domestic Policy

The NLRB has issued a new rule to ease unionization, reports Steven Greenhouse: "The National Labor Relations Board issued new regulations on Thursday that require companies to put posters on their bulletin boards that inform employees about their rights to unionize under federal law. Under the new regulations, businesses would have to display notices that explain the right to bargain collectively, to give out union literature and to work together to improve wages and conditions free of retaliation. Noting that many workers are unaware of these rights, the board said the new regulations are aimed at making it easier for workers to exercise their rights under the National Labor Relations Act, which sets rules for unionization efforts. Agricultural, rail and airline employers would not be covered by the new rule. Business groups were quick to criticize the new regulations."

The AFL-CIO wants Democrats to walk away from a bad supercommittee deal, reports Brian Beutler: "AFL-CIO President Richard Trumka said Democrats should be prepared to walk away from a bad deficit deal even if the consequence is a far-reaching penalty that would likely cost a huge number of jobs. 'They shouldn't agree to anything that's a bad deal,' Trumka told reporters at a Christian Science Monitor breakfast roundtable. He warned Democrats against voting for any Super Committee plan that cuts Social Security and lets wealthy Americans off the hook by not raising their taxes. But voting no comes with consequences. If the committee gridlocks or passes a plan that fails in Congress, it will trigger $1.2 trillion in spending cuts split evenly between defense and domestic programs. Those cuts would harm the economy, Trumka admitted: 'If the trigger hits there'll be a couple million jobs lost in this country,' he said."

The working poor are today's welfare queens, writes Ed Kilgore: "When Rick Perry paused, mid-tirade against taxes, in his presidential announcement speech to deplore the number of Americans who pay no federal income taxes (a theme also common in the rhetoric of his rival Michele Bachmann), he was implicitly attacking the Earned Income Tax Credit, which offsets (and, for some, exceeds) federal income tax (but not, of course, payroll or other tax) liability for people of limited income. It was a telling moment, as an expanded EITC, Ronald Reagan’s favorite social policy instrument, was central to the design of the 1996 welfare reform law...Underlying this assault, there seems to be a current of genuine anger at the working families who no longer receive 'welfare as we knew it,' but remain beneficiaries of some form of redistribution, even if it’s only progressive tax rates."

Visualization interlude: An animation of what a black hole enveloping a star would look like.

Energy

The BP oil spill may be recurring, reports Joel Achenbach: "The Coast Guard and BP have returned to the scene of last year’s Deepwater Horizon disaster after a newspaper reported numerous oily blobs rising to the surface of the Gulf of Mexico a mile from the site. BP is sending a robotic submersible to examine the blown-out well that was cemented last August and declared dead a month later. An initial search turned up no sign of oil at the surface, and BP said in a statement late Thursday that there is no indication that its Macondo well is leaking. But the report by the Press-Register in Mobile, Ala., has incited a flurry of investigatory activity around the well, which blew out on April 20, 2010, in what became the worst oil spill in U.S. history. The Coast Guard used a plane and a cutter to search for the oil Thursday."


Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Jessica Sabbah.

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