Bernanke Fails on Employment
Federal Reserve Board Chairman Ben Bernanke and other members of the Fed are fond of saying that part of their job is to manage monetary policy for maximum employment, five times in this short speech by Vice Chairman Kohn. It’s true they have this duty. 12 U.S.C. § 225a.
The Fed is also required file a written report to Congress every six months. Let’s see what Bernanke reported last time, July 29, 2009, on the employment front. First we learn that unemployment is rising and production is falling. P. 1. Here is the forecast (P.2):
However, all participants expected that labor market conditions
would continue to deteriorate during the remainder of this year and improve only slowly over the subsequent two years, with the unemployment rate still elevated at the end of 2011.
And what is Chairman Bernanke going to do about employment? Keep reading. Eventually you get to page 31, where we learn that the Fed is going to a) buy up a bunch of Treasuries and Agency Debt, b) buy up a bunch of mortgage backed securities, and c) help fund the TALF, the Term Asset-Backed Securities Loan Facility. The first two are designed to pump money into the financial system, which helps banks survive, but has no direct effect on employment. Instead, it scares the Chicken Littles, who think any increase in the money supply will lead directly to hyperinflation. Indeed, the report devotes over three pages to the steps the Fed will take to unwind the steps taken to deal with the great recession, as if that were the problem, instead of 10% unemployment.
The TALF is supposed to buy securitized consumer loans, like car loans and credit card loans, and loans to small businesses guaranteed by the SBA. It might help consumers buy stuff, which might encourage employment indirectly. Easing securitization of SBA loans could conceivably help. Or not. The Congressional Oversight Panel, chaired by Elizabeth Warren, addressed TALF in its May 2009 report. The COP thinks TALF was poorly designed, and that it didn’t target the real problem. Consumers didn’t want to borrow money, so making that easier wouldn’t really help. The COP says asset-backed securities have never been a significant source of lending to small businesses, so that isn’t going to help.
And, that’s it. The full extent of the Fed’s efforts to increase employment was a program to pour money into banks and minimal help with consumer spending and small business lending. Meanwhile, bank lending fell all year at giant banks like JPMorgan Chase (P. 2) and was flat to lower at Bank of America (P. 35).
There were things he could have done. He could have used his supervisory powers to insist on increased lending to small businesses, by telling the Fed’s examiners to look at small business loans that weren’t renewed, and applications that weren’t granted and treat that as part of their examination report. That would have forced banks to justify their failure to lend. He could have increased the Fed’s inflation target, which Scarecrow points to as a good step on the employment front.
Under Bernanke, the Fed hasn’t thought of anything that would actually help on the employment front. It hasn’t done anything to meet its statutory objective of assuring maximum employment. But it sure has shown it can help banks recover their profitability and their bonuses.
I know Bernanke has the all-important support of Alan Greenspan; and I know that there is a good chance that if he isn’t confirmed, the world will come to an end. Just ask Senator Dodd, Senate Banking Committee chairman, who
… renewed his support for the Fed chief today. He said rejecting him would send the “worst signal to the markets right now” and produce an economic “tailspin.”
Here’s a real world signal for the “markets”: the entire country has been devastated by your greed and incompetence. It’s infuriating that you failures can hold us hostage while you buy Lamborghinis with your bonuses.
photograph courtesy of pingnews