[Congressional Record Volume 156, Number 149 (Tuesday, November 16, 2010)]
[Extensions of Remarks]
[Pages E1934-E1935]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  PARTISAN CONSERVATIVES CONTINUE ATTACK ON FED'S EFFORT TO HELP THE 
                                ECONOMY

                                 ______
                                 

                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                       Tuesday, November 16, 2010

  Mr. FRANK of Massachusetts. Madam Speaker, I continue to be appalled 
by the spectacle of much of the conservative political movement in 
America attacking the man George Bush first appointed to head the 
Federal Reserve for his efforts to promote faster economic growth and a 
greater reduction in unemployment. Ben Bernanke's role in trying to 
cope with the economic disaster that the Obama Administration inherited 
from the Bush Administration has been productive and courageous. 
Consistently, he has refused to listen to conservatives, mostly 
although not entirely from the right, objecting to his efforts to 
provide the financial support needed for economic growth to go forward. 
Predictions that this would lead to ruinous inflation have proven 
baseless; the notion that this would lead to enormous losses in federal 
funds have also been refuted.
  Despite the record of success that the Fed has shown in these 
efforts, despite the fact that inflation is nowhere in prospect, 
despite the fact that when challenged by Republican Members of the 
Financial Services Committee in a series of hearings we held Mr. 
Bernanke was able to refute--easily--any suggestion that these measures 
could get out of control, documenting that he has thoughtful plans for 
containing them--despite all of this, leading conservatives have 
decided for reasons I cannot fathom, to join China, Germany, and other 
foreign nations in assailing Mr. Bernanke for efforts to improve our 
economic condition.
  The notion that a fear of inflation, given the current statistics, 
should prevail over efforts to stimulate economic activity and reduce 
unemployment is baffling, and if fully understood by the American 
people, will be certainly rejected.
  Yesterday, Madam Speaker, I inserted into the Record powerful 
arguments in defense of Mr. Bernanke from the New York Times Editorial 
Board and Martin Wolf of the Financial Times. I wish to add today to 
that list of thoughtful people who are defending the Federal Reserve 
Chairman against the China-German-right-wing Republican attack, an 
editorial from the Boston Globe, and a thoughtful article from one of 
our leading economists, Professor Alan Blinder of Princeton, himself a 
former Vice Chair of the Fed.

                      A Global Chorus of Kvetchers

       The Federal Reserve's attempt to stimulate economic growth 
     by purchasing $600 billion worth of long-term Treasury bonds 
     over the coming eight months may not produe the hoped-for 
     spurt in lending and investment. Cash-rich banks and other 
     corporations seem worried more about anemic demand than the 
     cost of money. But whatever the domestic effects of Fed 
     Chairman Ben Bernanke's use of monetary policy to ward off 
     deflation, the vehement criticism of the move from other 
     countries is way off base.
       China, Germany, and Brazil have led the complainers' 
     chorus. Tellingly, all three enjoy significant and growing 
     trade surpluses. During the run-up to the G-20 summit in 
     South Korea, they accused the Fed of a stealthy form of 
     currency manipulation. In the case of China, the pot is 
     calling the kettle black. China's propping up of the yuan in 
     currency markets has been flagrant.
       The G-20 summit, which ended Friday, was justly panned for 
     the failure of the world's leading economic powers to agree 
     on measures to prevent each other from deliberately 
     undervaluing their currencies to promote exports and 
     discourage imports. Charges and countercharges abounded.
       Nonetheless, it was a positive sign that Chinese President 
     Hu Jintao agreed to take specific actions to boost his 
     country's domestic consumption of goods. This could herald a 
     significant shift for an economy geared toward maximizing 
     exports. And President Obama got the better of the argument 
     about the Fed's effort to stimulate growth and create jobs in 
     the United States. No one could refute Obama's contention 
     that a ``strong recovery'' in America ``is the most important 
     contribution the United States can make to global economic 
     recovery.''
       The disputes within the G-20 involve nettlesome matters and 
     cannot be resolved quickly, The most positive sign to come 
     out of the summit was a broad awareness of the need for 
     continued consultation and cooperation to avoid a repeat of 
     the protectionist

[[Page E1935]]

     policies that exacerbated the Great Depression. In those 
     consultations, US officials are entitled to be unapologetic 
     about defending the Fed's effort to promote growth in the US 
     economy as an effort that serves the longterm interests of 
     China, Germany, Brazil, and many other countries.
                                  ____


             [From the Wall Street Journal, Nov. 15, 2010]

                       In Defense of Ben Bernanke

                          (By Alan S. Blinder)

       Ignorance is not bliss, especially when your economy is 
     faltering and sound policies are badly needed.
       For months, we have witnessed the spectacle of people 
     arguing that Keynes was wrong. Somehow, additional government 
     spending actually reduces employment--even when the economy 
     has huge amounts of spare capacity and unused labor desperate 
     for work; even when the central bank will prevent interest 
     rates from rising to ``crowd out'' private spending. Really?
       One current catchphrase is ``job-killing spending.'' Hmmm. 
     How, exactly, does more spending kill jobs when there is idle 
     capacity and no threat of rising interest rates? Stumped? So 
     am I.
       The anti-Keynesian revival has been disheartening enough. 
     But now the economic equivalent of the Flat Earth Society is 
     turning its fury on Ben Bernanke and the Federal Reserve. 
     Critics ranging from German Finance Minister Wolfgang 
     Schauble to tea party favorite Sarah Palin--which is quite a 
     range--have spoken as if Bernanke & Co. have lost their 
     marbles and are embarking on a wild policy misadventure.
       All in all, it looks like the nation and the world need an 
     Economics 101 refresher. So let's start with the basics.
       The Fed's plan is to purchase about $600 billion of 
     additional U.S. government securities over about eight 
     months, creating more bank reserves (``printing money'') to 
     do so. This policy is one version of quantitative easing, or 
     ``QE'' for short. And since the Fed has done QE before, this 
     episode has been branded ``QE2.''
       Here's the first Economics 101 question: When central banks 
     seek to stimulate their economies, how do they normally do 
     it? If you answered, ``by lowering short-term interest 
     rates,'' you get half credit. For full credit, you must 
     explain how: They create new bank reserves to purchase short-
     term government securities (in the U.S., that's mostly 
     Treasury bills). Yes, they print money.
       But short-term rates are practically zero in the U.S. now, 
     so the Fed wants to push down medium- and long-term interest 
     rates instead. How? You guessed it: by creating new bank 
     reserves to purchase medium- and long-term government 
     securities.
       That sounds pretty similar to garden-variety monetary 
     policy. Yet critics are branding QE2 a radical departure from 
     past practices and a dangerous experiment.
       The next charge is that QE2 will be inflationary. Partly 
     true. The Fed actually wants a bit more inflation because, 
     now and for the foreseeable future, inflation is running 
     below its informal 1.5 percent to 2 percent target. In fact, 
     there's some concern that inflation will dip below zero--into 
     deflation. The Fed, thank goodness, is determined to stop 
     that. We don't want to be the next Japan now, do we?
       But might the Fed err and produce too much inflation? Yes, 
     it might, leaving us with, say, 3 percent inflation instead 
     of 2 percent. Or it might err in the opposite direction and 
     produce only 1 percent. Neither outcome is desirable, but 
     each is quite tolerable. To create the fearsome inflation 
     rates envisioned by the more extreme critics, the Fed would 
     have to be incredibly incompetent, which it is not.
       The final major charge, levied especially by a number of 
     foreign officials, is that the Fed's new policy amounts to 
     currency manipulation: deliberately lowering the 
     international value of the dollar to gain competitive 
     advantage for U.S. exporters. Is there any truth to this? Not 
     if words have any meaning.
       Economics 101 teaches us that one standard side effect of a 
     central bank reducing interest rates is a lower exchange 
     rate. Actually, things don't always work out that way in the 
     real world; sometimes the stronger growth pushes the currency 
     up instead. This contradictory evidence notwithstanding, it 
     is commonly assumed that expansionary monetary policy 
     depreciates the currency. That's why some foreign 
     governments, especially the more mercantilist ones, are 
     apoplectic. What's down for us is up for them.
       But calling QE2 ``currency manipulation'' is a grotesque 
     abuse of language. After all, the U.S. dollar is a floating 
     currency. Many factors, including but certainly not limited 
     to monetary policy, influence the exchange rate, which 
     changes every minute. But the Fed will not intervene to push 
     the dollar down. If the dollar should rise instead of 
     falling, c'est la vie.
       More important, the U.S. is a sovereign nation with a right 
     to its own monetary policy. So I was stunned when a top aide 
     to the Russian president suggested that the Fed should 
     consult with other countries before making major policy 
     decisions. Come again? An independent central bank doesn't 
     even consult with its own government.
       Finally, there's that old hobgoblin: consistency. Critics 
     tell us that QE2 won't give the U.S. economy much of a boost 
     but will lead to rampant inflation. Both? How does that work?
       If buying Treasurys is a weak policy tool, a view with 
     which I have some sympathy, then it shouldn't be very 
     inflationary. There is no magic link between growth of the 
     central bank's balance sheet and inflation. People, 
     businesses and banks have to take actions--like spending 
     more, investing more, and lending more--to connect the two. 
     If they don't, we will get neither faster growth nor higher 
     inflation, just more idle bank reserves.
       What the Fed proposes to do is neither foolproof nor 
     perfect. Frankly, it's not the policy I would choose. As I've 
     written on this page, I'd like the Fed to purchase private 
     securities and to reduce the interest rate it pays on 
     reserves, even turning it negative. The latter would blast 
     reserves out of banks into some productive uses.
       But I don't run the Fed. Maybe Chairman Bernanke's ideas 
     are better than mine and, in any case, the planned QE2 is far 
     better than doing nothing. It is not a shot in the dark, not 
     a radical departure from conventional monetary policy, and 
     certainly not a form of currency manipulation.
       I know Ben Bernanke. Ben Bemanke is a friend of mine. And 
     critics ranging from Mr. Schauble to Ms. Palin are no Ben 
     Bernankes.

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