By Evan Newmark, WSJ
Does our national liberal conscience, Paul Krugman, consider Fed Chairman Ben Bernanke a madman?
Judging by Krugman’s recent blog screeds against the G20 and other “deficit hawks” you might think so. Krugman believes it is “folly” and “crazy” to demand “fiscal austerity” given the weakness of the global economy.
“How much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity? The answer is, to reassure the markets…” said Krugman two days ago, as he dismissed the notion that happy markets make a happy economy.
So what did a sober and even-keeled Chairman Bernanke call for today in his testimony before the House Budget Committee?
“In the absence of further policy actions, the federal budget appears to be on an unsustainable path….to retain the confidence of the public and the markets, we should be planning now how we will meet these looming budgetary challenges.”
Got that? “Retain the confidence of the public and the markets.” Planning “now”. Not later.
In other words, to Paul Krugman, Robert Reich and the rest of the stimulus-happy Keynesians, “you can go shove it.”
No doubt, I am taking some interpretative liberty here. Bernanke isn’t calling for an immediate end to deficit spending. But his message is pretty clear: Forget about more stimulus. America has to get its fiscal act together ASAP.
Bernanke re-iterated that message in questions from Rep. Jeb Hensarling. Do we need a plan in place “now”, asked Hensarling. “You got it”, said Bernanke, although he mumbled the kind of forgettable response favored by Fed chairmen.
Was it a coincidence that both bond yields and equity prices moved sharply higher after the Bernanke-Hensarling exchange? I don’t think so.
Wall Street isn’t too keen on more stimulus — especially as the first $787 billion package didn’t work as advertised. The White House said the stimulus would keep unemployment at 8% in 2009. We’ll be lucky if it gets back to 8% by 2012.
Of course, in his testimony Bernanke undertook a defense of the Obama stimulus. After all, the president re-nominated him for his post. But it was an awfully modest defense. The TARP was necessary, said Bernanke. But the big stimulus was merely “helpful.”
A few Democratic congressmen attempted to draw Bernanke into praising the spending elements of the stimulus but Bernanke just wouldn’t bite. “I don’t want to take sides. I don’t want to adjudicate,” he said.
You could see why Bernanke’s answers didn’t sit well with Democrats. There’s a $100 billion jobs bill up for passage — and increasingly it’s looking like political suicide to pass it.
It took Charles Djou, the new Republican Congressman from Hawaii, to put it bluntly to Bernanke. Should there be “additional fiscal stimulus?”
And Bernanke answered as bluntly as a Fed Chairman ever will, “If you (Congress) decide to do more fiscal stimulus, then it would be very helpful to combine that with a plan for a fiscal exit strategy.”
Everyone in that hearing room got the joke. Congress not only has no plan for a fiscal exit strategy. It can’t even be trusted to come up with one. That’s why we now have a presidential bipartisan debt commission.
In effect, Bernanke was saying “Read my lips. No more stimulus.”
See the full report here: http://blogs.wsj.com/deals/2010/06/09/mean-street-bernanke-tells-krugman-to-shove-it/