Man, the world has gotten depressing recently.
Every time I read the news or flip on a cable news channel, it’s the same dreary stories day in and day out: Oil prices are skyrocketing, the dollar is plummeting, commodities prices are soaring, and Lady Gaga still wears ridiculous clothing in her music videos. Usually one looks to our President for answers, but he’s been too busy raising money for his re-election campaign to stop and give us any answer that doesn’t involve partisan rants or false promises. So rather than listen to the same old chatter, I decided to listen to another perspective on our current economic woes, one that is rarely heard outside of Congressional hearings, and an individual that is often shrouded in a fog of confusion and frustrating mystery. Today was Federal Reserve chairman Ben Bernanke’s first news conference of his tenure as chairman, a rarity for someone of his position. I was hoping that watching this news conference would shed some light on our fiscal and monetary problems we are suffering from right now. Why is the price of oil so high? What is causing the dollar to fall to such lows? Why are commodities like beef and corn getting more expensive? I thought all of these questions would be at least partially answered by the Fed chairman today, but alas, all I got was more of the same old chatter with no answers or substance.
Up until now, the Federal Reserve’s answer to our fiscal woes has been to print more money. The way the Fed does this is by buying government bonds and securities from banks and the Treasury, or by lowering the amount of money banks are required to keep in reserve, which puts greenbacks into circulation. This strategy, termed “Quantitative Easing”, is intended to make credit easier to come by, and give businesses money to pay their employees and take out loans. A few months ago, Ben Bernanke authorized $600 billion worth of bonds to be bought, which has caused inflation. Essentially, what has happened is that since more dollars are in circulation, they are being devalued, which means goods suppliers want more money for their goods, causing inflation to occur. In addition to these policies, the revolutions throughout the Middle East have caused oil prices to jump to record highs, making transportation of goods more expensive. Since oil prices are determined in US dollars, it makes the dollar look weaker and weaker. Hoping to hear about a new direction from the Fed chairman, I tuned in, but all I got instead was Bernanke saying his policies were going to remain the same.
When asked about the rising gas prices, he admitted that there isn’t much the Fed could do to stem the rise. While I agree that he can’t magically make them go lower, and we shouldn’t expect him to take any drastic action, there are still policies that he could enact that would help consumers at the pump, like selling government bonds to take dollars out of circulation and keep the prices somewhat controlled. Since the United States has an import-driven economy, it is imperative that we have a strong currency so imports, like oil, remain affordable. Bernanke went on to say that he can’t lower the rate of inflation right now because the economy is still fragile, and doing so would cause a second recession. He conveniently forgot to mention that persistent inflation is still not good either, and if the 2% inflation rate (which he has set right now) holds for much longer, it would put American jobs at risk by making goods harder to afford. I know 2% doesn’t seem like much right now, but as time goes on, it has a bigger and bigger impact on the economy than previously.
The press members that were present today did a pretty good job at asking tough, poignant questions regarding the state of the economy, and I only hoped that Bernanke would be able to respond with more than just vague answers that the Federal Reserve is famous for. Since such public statements by a man in his position are rare, I was hoping that he was going to announce some bold new plan of his to keep the economy going, or what he thought would keep the economy going but instead made the dollar weaker and weaker. Unfortunately, the much hyped news conference was just Bernanke telling the nation that he’s continuing the same policies and that he might alter them when the economy gets better and more people become employed. He still deserves some applause for having a big enough pair of moneybags to go in front of the cameras, but I just wish I got some real answers as to why the country is on a slow, depressing decline.
Back to the depressing drone for me, I suppose.