Federal Reserve Chairman Ben Bernanke gave a speech in Jackson Hole on Friday on the Fed’s monetary policy. Naturally, he used Fedspeak, which can be difficult to understand. So here’s a bit of translation of key parts of his speech.
As you know, in the latter part of 2008 and early 2009, the Federal Reserve took extraordinary steps to provide liquidity and support credit market functioning, including the establishment of a number of emergency lending facilities and the creation or extension of currency swap agreements with 14 central banks around the world. In its role as banking regulator, the Federal Reserve also led stress tests of the largest U.S. bank holding companies, setting the stage for the companies to raise capital. These actions–along with a host of interventions by other policymakers in the United States and throughout the world–helped stabilize global financial markets, which in turn served to check the deterioration in the real economy and the emergence of deflationary pressures.
Translation: We printed a lot of money to bail out the European banking system and to incentivize people to continue borrowing and spending instead of saving and freeing themselves from our shackles by paying down their debt.
Model simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy.
Translation: Believe us, this inflation is good for you.
A second potential cost of additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed’s ability to exit smoothly from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might increase the risk of a costly unanchoring of inflation expectations, leading in turn to financial and economic instability.
Translation: Although if we just keep printing money, there is a risk that it could get really out of hand.
A fourth potential cost of balance sheet policies is the possibility that the Federal Reserve could incur financial losses should interest rates rise to an unexpected extent. Extensive analyses suggest that, from a purely fiscal perspective, the odds are strong that the Fed’s asset purchases will make money for the taxpayers, reducing the federal deficit and debt.*
*Remittances to the Treasury from the Federal Reserve have totaled about $200 billion over the past three years, well above historical averages.
Translation: We don’t want to be the only ones holding the bag when the bond bubble bursts, and we’ve been very generous to the American taxpayers already by financing their government’s debt by printing money for them out of nothing and charging them interest for its use, most of which we, in our great generosity, even return to the Treasury after taking just a little off the top to cover our operational expenses and to pay the 6% annual dividend to the Fed’s private owners.
In sum, both the benefits and costs of nontraditional monetary policies are uncertain; in all likelihood, they will also vary over time, depending on factors such as the state of the economy and financial markets and the extent of prior Federal Reserve asset purchases. Moreover, nontraditional policies have potential costs that may be less relevant for traditional policies. For these reasons, the hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.
Translation: We’re in uncharted territory now, but we don’t know anything other than printing money, so we will probably just keep doing that.
The accommodative monetary policies I have reviewed today, both traditional and nontraditional, have provided important support to the economic recovery while helping to maintain price stability…. Key sectors such as manufacturing, housing, and international trade have strengthened, firms’ investment in equipment and software has rebounded, and conditions in financial and credit markets have improved.
Translation: After we blew up the housing bubble by holding interest rates artificially low (by printing money) and it burst, we prevented the market correction by printing even more money to try to reinflate another bubble in housing and/or in other sectors of the economy.
Rather than attributing the slow recovery to longer-term structural factors, I see growth being held back currently by a number of headwinds. First, although the housing sector has shown signs of improvement, housing activity remains at low levels and is contributing much less to the recovery than would normally be expected at this stage of the cycle.
Translation: Trouble is, the market doesn’t seem to think reinflating the housing bubble is such a good idea.
Second, fiscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth. Notwithstanding some recent improvement in tax revenues, state and local governments still face tight budget situations and continue to cut real spending and employment.
Translation: The federal government is doing real good at enslaving the American people with increased spending, a continued deficit of over $1 trillion and a ballooning national debt at over $16 trillion (not including the unfunded liabilities of entitlement programs, which puts it at well over $100, trillion), which they pay for in large part by having us monetize their debt which we do by creating money out of thin air and charging the taxpayers interest for its use. Trouble is, state and local governments aren’t playing ball, but are trying to balance their budgets. As when people try to save and pay down debt instead of borrowing and consuming more and more, this doesn’t suit the interests of the member banks that own the Fed, and the deflationary pressure of the market could eventually result in bank runs revealing the inherent insolvency of the fractional-reserve banking system.
It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. However, policymakers should take care to avoid a sharp near-term fiscal contraction that could endanger the recovery.
Translation: Americans are concerned about the growing debt and enslavement of their children and grandchildren, so the federal government needs to reassure them by talking about making spending “cuts”, but not get too serious about it and only make cuts from the baseline spending increases, which continued spending, like inflation, believe me, is really good for you.
Third, stresses in credit and financial markets continue to restrain the economy. Earlier in the recovery, limited credit availability was an important factor holding back growth, and tight borrowing conditions for some potential homebuyers and small businesses remain a problem today. More recently, however, a major source of financial strains has been uncertainty about developments in Europe. These strains are most problematic for the Europeans, of course, but through global trade and financial linkages, the effects of the European situation on the U.S. economy are significant as well.
Translation: Try as we might, even with our government-legislated monopoly, we just haven’t managed to kill the free market, which keeps rearing its ugly head and trying to undo all the hard work we’ve done trying to outsmart it and to micromanage the economy ourselves to better suit the interests of the banking system.
Early in my tenure as a member of the Board of Governors, I gave a speech that considered options for monetary policy when the short-term policy interest rate is close to its effective lower bound. I was reacting to common assertions at the time that monetary policymakers would be “out of ammunition” as the federal funds rate came closer to zero. I argued that, to the contrary, policy could still be effective near the lower bound. Now, with several years of experience with nontraditional policies both in the United States and in other advanced economies, we know more about how such policies work. It seems clear, based on this experience, that such policies can be effective, and that, in their absence, the 2007-09 recession would have been deeper and the current recovery would have been slower than has actually occurred.
Translation: Despite fears among the public that we are in uncharted territory and don’t really know what we are doing, just as I predicted, printing money hasn’t led to runaway inflation yet, so we will keep doing it.
Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.
Translation: We can’t micromanage the economy entirely by ourselves. The federal government also must do its part to try to kill the forces of the free market, as well as to continue paying for its spending by borrowing money we create out of thin air at interest to the American taxpayers.
As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation.
Translation: As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront the banking system and the political and financial elites.
The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.
Translation: The unemployment among the slave labor class is a grave concern not only because the serfs need jobs to feed themselves, but also because if they don’t keep working for us, we will not be able to continue to afford living in luxury while not actually producing anything of value.
Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
Translation: We have acted to keep the serfs busy, and to keep them borrowing and spending more and more, and it is important to achieve further indebtedness among the peasant classes. We will do whatever is necessary to maintain our current monetary system in which money equals debt, which debt we set a target rate for of annual increase, by punishing savers and encouraging borrowing and spending with more money printing so long as it hasn’t yet resulted in runaway inflation.