Bernanke: ‘A trillion here, a trillion there…’
UPDATE: As a comment below points out, Bernanke ‘s “a trillion here, a trillion there…” was probably a play on Republican Senator Everett Dirksen’s famous line, “A billion here, a billion there, and pretty soon you’re talking real money.” Though there is no evidence of Dirksen ever actually saying those words, some people believe he did it on the Johnny Carson Show.
Federal Reserve Chairman Ben Bernanke told the Joint Economic Committee absolutely nothing of real value Thursday — which was more than enough to chill the market.
Takeaway: unless economic conditions further deteriorate, no big Fed actions are forthcoming. (Or, who knows, maybe they are?) “The Federal Reserve,” Bernanke explained, “remains prepared to take action as needed to protect the U.S. financial system and the economy in the event that financial stresses escalate” — though he later added that the European meltdown poses “significant risks” to the U.S. recovery.
Bernanke also pointed out — probably for the benefit of all those financial journalists who think otherwise — that “monetary policy is no panacea.”
The Fed chair has been bludgeoned by critics over his failure to engage in another round of quantitative easing. And on Thursday Bernanke said that the option remains on the table (as if anyone could take it off). From this, the media jumped all over the “Bernanke hasn’t ruled out QE3!” story. But a few qualifier-laden statements like “at this point, I can’t say anything is completely off the table” hardly constitutes a change in position. Whatever that position is.
What’s somewhat surprising, though, is that while Republicans are adamant about QE3 — a big “no” — Democrats seem thoroughly ambivalent on the matter. Since the “stimulus” failed to achieve its self-proclaimed goals, many on the left have been advocating for a larger injections of money into the economy. The most effective way to do this, without having to deal with that pesky mercurial democratic process, is to use the Fed.
Texas Republican Rep. Kevin Brady, for instance, said, “I wish you would take QE3 off the table. I wish you would look the markets in the eye and say that the Fed has done too much.” Sen. Jim DeMint (R-S.C.) claimed that the Fed’s stimulative efforts “are giving us a false sense of security.”
To this Bernanke joked/said “a trillion there, a trillion here” won’t solve the debt crisis.
Here’s the interaction via Daily Caller:
“If we were to raise interest rates by a full percentage point, and ignoring the fact that most debt is of longer duration, it would not reprise, that would still only raise the annual deficit by something a little over $100 billion,” Bernanke said, noting that the amount is relatively small with an annual deficit of a $1 trillion.
“That’s real money,” DeMint responded.
“Trillion there, a trillion here,” Bernanke responded. “Yes, sir I agree with that. But what I’m saying is that the situation is — the deficits are so large, particularly going out over the next few years, irrespective of the level of interest rates, that I would think that Congress would have plenty of motivation to try to address that and that whether or not interest rates are currently 1.5 percent for ten years or 2.5 percent for ten years doesn’t make much difference.”
Bernanke also warned Congress that at some point “there may be some diminishing returns” to the Fed’s involvement and stressed that the debt crisis has to be fixed by Washington.