Bernanke Calls On Congress To Help The Economy -- For At Least The Fourth Time In Five Months

NEW YORK -- For at least the fourth time since June, Federal Reserve Chairman Ben Bernanke publicly urged Congress to combat the lackluster recovery by increasing government spending, a recommendation that has gone unheeded by lawmakers.

In a speech at a conference of central bankers in Frankfurt, Bernanke once again said the Fed cannot save the economy on its own. The Fed's recent move to add to its ballooning balance sheet by committing to buy up to $600 billion of government debt faces "limits" to its effectiveness, Bernanke said. The rest of the government, the chairman added, could aid the Fed's efforts by hammering out a plan for stimulative spending. The right kind of spending, he noted, could help reduce the budget deficit over the long-term by first boosting economic growth.

"[I]n general terms, a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve," Bernanke said Friday, according to his written remarks.

The fiscal policy recommendation came directly after Bernanke acknowledged it isn't his job to make such policy proposals. "The Federal Reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs," the chairman noted.

The official parameters of his job, though, have not stopped Bernanke from engaging in backseat driving. At least four times since June -- on June 9, July 21, July 22 and now Friday -- he has urged lawmakers to increase spending to jumpstart the lagging economy.

But policy makers have proved to be unable to agree upon such a plan -- or even propose one that's viable. The rest of the nation has suffered as a result, as near-10 percent unemployment continues to hobble the economy. Democrats recently lost control of the House of Representatives, and a substantial part of their majority in the Senate. Voters said the dismal economy was their top concern.

To combat an ineffectual Washington establishment, the Fed has taken matters into its own hands. By buying up to $600 billion of government debt, the central bank hopes to increase the flow of money through the economy. Critics of the program, which is intended to lower interest rates and encourage corporate spending, have said the cheap money will not convince businesses to create jobs.

Companies are already sitting on about $1.8 trillion in cash and other liquid assets, according to the most recent quarterly data from the Fed. Only an increase in consumer demand and business confidence, critics say, will spur a robust recovery.

Bernanke, too, has said the Fed's actions won't be enough. While its actions determine interest rates and the money supply, in order to be effective, Bernanke has said, it must be combined with expansionary fiscal policy. In other words, the government has to ramp up spending.

By law, the Federal Reserve's function is to "maintain long run growth of the monetary and credit aggregates" in order to promote "maximum employment, stable prices, and moderate long-term interest rates."

As Rep. Scott Garrett (R-N.J.) reminded Bernanke during a July hearing, "it would be an unconstitutional role for the Fed to engage in fiscal policy."

The central banker has not publicly supported actual bills pending in Congress. But over the past year, he hasn't been shy about giving his opinion, and nudging Congress along:

June 9, before the House Committee on the Budget: "Achieving long-term fiscal sustainability will be difficult. But unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth." And he went on: "Right now I don't think is the time -- this very moment is not the time -- to radically reduce our spending or raise our taxes because the economy is still in recovery mode and needs that support." Fiscal stimulus, he said, is necessary. "I think, you know, right now we have a broadly stimulative fiscal policy which, at the moment, is helping, is needed, that includes lower taxes and probably higher spending as well."

July 21, before the Senate Banking Committee: "At the current moment the large deficits, as unattractive as they are, are important for supporting economic activity."

July 22, before the House Financial Services Committee: "More generally, certainly both the Fed, the Treasury, the Congress and everyone should try to focus on growth-oriented policies. It's important to take steps, including control the fiscal deficit, that will support longer-term growth, which will increase confidence in the present, and to do what we can to reduce uncertainty, about policies and about the economy. ... [I]n general, as I said, I think that maintaining the current level of fiscal support is important because the economy is still quite weak."

Bernanke, though, also wants Congress to get a handle on the federal government's ballooning yearly deficits and overall debt. A growing chorus of experts believe that the government's bulging debt endangers long-term growth. Among Bernanke's statements:

April 7, Dallas, Tex.: "Indeed, a credible plan that demonstrated a commitment to achieving long-run fiscal sustainability could lead to lower interest rates and more rapid growth in the near term."

April 14, before the Joint Economic Committee: "In other words, addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult."

April 27, at the National Commission on Fiscal Responsibility and Reform: "Thus, the reality is that the Congress, the Administration, and the American people will have to choose among making modifications to entitlement programs such as Medicare and Social Security, restraining federal spending on everything else, accepting higher taxes, or some combination thereof. "

August 2, Charleston, S.C.: "Thus, state governments may wish to revisit their criteria for accumulating fiscal reserves. Building a rainy-day fund during good times may not be politically popular, but it can pay off during the bad times." He continued, "The states have the opportunity to serve as role models for effective long-term fiscal planning."

October 4, Providence, R.I.: "What we do know, however, is that the threat to our economy is real and growing, which should be sufficient reason for fiscal policy makers to put in place a credible plan for bringing deficits down to sustainable levels over the medium term."

The Republican economist appears to believe that the best way to encourage economic growth and reduce the near-record unemployment rate is to increase government spending in the short-term; create a credible plan to tackle record deficits in the medium-term; and deploy that plan (and stick to it) over the long-term.

Whether the White House and Congress can formulate such a plan -- and agree to it -- is a matter beyond Bernanke's control.

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