Ben Bernanke gave his second interview to “60 Minutes” last night.
This interview is very notable in many respects. I could make extensive comments on various aspects of the interview, as I continue to have vast differences of opinion with many of Ben Bernanke’s stated comments and analyses. For now I will make some brief comments on various excerpts from the transcript. (My previous blog posts on Ben Bernanke can be found under the “Ben Bernanke” category.)
Perhaps the first thing to catch my attention was the following introductory comment by Scott Pelley: “Bernanke feels he has to speak out because he believes his critics may not understand how much trouble the economy is in.”
Other notable exchanges between Pelley and Bernanke include (with my comments, if any, prefaced in italics):
Pelley: Some people think the $600 billion is a terrible idea.
Bernanke: Well, I know some people think that but what they are doing is they’re looking at some of the risks and uncertainties with doing this policy action but what I think they’re not doing is looking at the risk of not acting.
my comment: This “risk of not acting” is a familiar refrain from those who support intervention efforts…
Bernanke (with regard to QE2): “What we’re doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster.
my comment: I think what Ben Bernanke meant to say is that he hopes to lower rates by buying Treasury securities.
Pelley: Can you act quickly enough to prevent inflation from getting out of control?
Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Pelley: You have what degree of confidence in your ability to control this?
Bernanke: One hundred percent.
my comment: One of the most dangerous aspects of QE2 is that we (as a nation) don’t appear to have a proper understanding and respect for the risks inherent in such an intervention. I think it is very unfortunate that most people seem (solely) fixated on possible inflationary implications. This fixation seems to preclude discussions of many other risks, which I have mentioned in other posts such as that of November 5. Also, while Ben Bernanke may be able to “raise interest rates in 15 minutes” that is not to say that doing so would be “painless” or not “highly disruptive” to the markets and economy – especially if raising the interest rate is done under (seemingly) urgent necessity.
Pelley: How would you rate the likelihood of dipping into recession again?
Bernanke: It doesn’t seem likely that we’ll have a double dip recession. And that’s because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can’t get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that’s the primary source of risk that we might have another slowdown in the economy.
Pelley: You seem to be saying that the recovery that we’re experiencing now is not self-sustaining.
Bernanke: It may not be. It’s very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that’s about what we’re getting. We’re not very far from the level where the economy is not self-sustaining.
my comments: First, the idea that housing “can’t get much weaker” is incorrect. My latest post on the potential downside of the housing market was on October 24. Second, It is interesting to hear Ben Bernanke make these comments about sustainability of this recovery. One of the main tenets of this blog is that the (purported) “economic recovery” we are currently experiencing is inherently unsustainable. I have elaborated upon this topic here.
Pelley: Is there anything that you wish you’d done differently over these last two and a half years or so?
Bernanke: Well, I wish I’d been omniscient and seen the crisis coming, the way you asked me about, I didn’t. But it was a very, very difficult situation. And the Federal Reserve responded very aggressively, very proactively.
my comment: This is a very candid assessment by Bernanke. He is correct in his assessment that it was “a very, very difficult situation.” The question arises as to whether this failure to see the first crisis coming will be extended to that of the next crisis. I believe that, unfortunately, it will (and has). Perhaps the foremost characteristic of our current and future economic situation is that of vast complexity. Also, with regard to the comment that “the Federal Reserve responded very aggressively, very proactively” – this is largely irrefutable; however, the main question should be whether the actions were correct both from a short-term and long-term perspective. I discuss this concept in a January 18 2009 article about interventions.
A Special Note concerning our economic situation is found here
SPX at 1224.71 as this post is written