Scary Words from Bernanke
This morning’s Wall Street Journal quotes a 1999 paper by Ben Bernanke as follows:
Roosevelt’s specific actions were, I think, less important than his willingness to be aggressive and to experiment — in short, to do whatever was necessary to get the country moving again.
Remember that one of FDR’s first actions was his successful push for the National Industrial Recovery Act, an Act that cartelized industries and slowed the recovery from the depression. You don’t get output to be higher by making it lower. Similarly, he reduced output in the agricultural sector. But that and other FDR actions were, according to Mr. Bernanke, “less important than his willingness to be aggressive.”
Here’s another chilling quote:
One buzz word inside the Fed these days is “blue sky,” a term meant to encourage Fed economists and other staffers to come up with ideas beyond their normal boundaries.
And clearly the Fed has been “blue skying” it. The article goes on to say:
One of the Fed’s next big projects is a program to backstop the asset-backed securities market, which finances auto, credit-card and student loans. It will be launched in February and Fed officials see potential in it to be expanded to other asset classes, such as commercial real estate.
I can hardly wait for such bold experimentation. And, actually, the markets will wait. People might hold off on resolving various debt issues to see if the Fed will “backstop” them.