The Defiant Ones

It was almost like watching a scene in a B-grade monster movie. Just before being attacked by the monster mutant, the victim empties his revolver into the beast and then, in one last futile gesture, throws the gun at the creature before being devoured. That scene captures the plight of Federal Reserve Board Chairman Ben Bernanke as he announced the Fed’s latest attempt to jumpstart the sluggish U.S. economy. The new gambit is far weaker than Bernanke’s previous initiatives, which centered upon maintaining artificially low interest rates for extended periods and “quantitative easing”— the practice of rapidly expanding the money supply in an attempt to bolster the stock market and facilitate lending.

Bernanke’s latest ploy is a mere hiccup compared to his previous gambits. It centers upon swapping short-term treasury bonds for longer term bonds in an attempt to reduce long-term interest rates for mortgages and corporate borrowing. This is truly throwing the empty gun at the beast. Mortgage rates and borrowing costs are already at near historic lows. Reducing them a fraction will not generate economic activity to any appreciable degree, because the economy is not being thwarted by high financing costs. It is being knee-capped by uncertainty.

Whether he likes it or not, Bernanke is handcuffed to the regulatory and fiscal policies of President Obama (almost like a fiscal version of a remake of the movie “The Defiant Ones”). No amount of fiscal stimulus by Bernanke can overcome the chilling effect current federal policies are having on business expansion and investment.

Take the most recent example. A few days ago, President Obama stood on the Ohio side of a river in a photo-op with a substandard bridge connecting Ohio with Kentucky in the background. The bridge joined Republican Speaker of the House John Boehner’s Ohio district with GOP Minority Leader of the Senate Mitch McConnell’s state. The president used the backdrop in a partisan political speech in which he demanded that the two Republican leaders pass his “jobs” bill in order to get the bridge fixed. Unfortunately, even if Congress passed the bill tomorrow Obama’s proposal would not fix the bridge. Why? Because it doesn’t qualify as a “shovel ready” project. Why? Because the environmental assessments and permits necessary would delay the start of construction on the bridge until 2015 at least. This is one of thousands of examples of the economy being lassoed by excessive federal regulations.

Any hope for the president to put an end to the maze of federal regulations thwarting economic expansion were dashed recently when Environmental Protection Agency (EPA) Secretary Lisa Jackson appeared before a congressional committee investigating the negative impact of federal regulations on the economy. Jackson not only denied any adverse economic impact of the EPA’s regulations, she made the farcical claim that they would help create jobs.

Any small amount of fiscal stimulus coming from Ben Bernanke’s basically failed attempts at stoking the economic fires would be more than offset by President Obama’s plans to significantly increase taxes on businesses large and small. Even former President Clinton (the last Democrat since John Kennedy to preside over a growing economy) threw cold water on the tax increase proposal claiming that it would do nothing to expand the economy and create jobs.

So the bad movie continues. Economic trends remain stagnant due to the uncertainty that federal policies create or threaten to create. As the numbers get worse, Bernanke makes increasingly hollow and desperate moves to provide stimulus. Where the movie ends is uncertain, but unless the script is changed soon, the ending will not be a good one.



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