Ben Bernanke made some points in testimony to the Senate yesterday worth amplifying. But more broadly, I thought he gave a strong statement in support of activist policy firing on all fronts to address the crisis. It doesn’t mean any of this stuff will happen, but pressure from the Fed chief is notable (my bold):
“Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies–pertaining to labor markets, housing, trade, taxation, and regulation, for example–also have important roles to play.”
“A second important objective is to avoid fiscal actions that could impede the ongoing economic recovery.”
In a useful exchange with Senator Casey (D-Pa), he also gave unequivocal support to the idea that I and others have recently stressed regarding China’s currency management: that it’s blocking an exit route from recession:
“…right now, a concern is that the Chinese currency policy is blocking what might be a more normal recovery process in the global economy…the Chinese currency policy is blocking that process, so it is to some extent hurting the recovery process.”
Finally, while he didn’t elaborate on specific policy interventions, the pressure points he listed in the housing sector are all the right ones, and most importantly from his perspective, along with that of the macroeconomy, these blockages are preventing a normal recovery wherein low borrowing rates boost homebuying and refis:
“The housing sector has been a significant driver of recovery from most recessions in the United States since World War II. This time, however, a number of factors–including the overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and the large number of “underwater” mortgages (on which homeowners owe more than their homes are worth)–have left the rate of new home construction at only about one-third of its average level in recent decades.”
There are ideas worth pursuing in every one of these areas: the jobs plan for a fiscal boost that as I’ve argued, is needed both to get folks back to work and for the monetary stimulus to gain traction (there’s a sequencing here: first demand, then response to low rates), the China currency bill that’s soon to pass the Senate, and a number of housing ideas, like REO to rental (and more that I’ll be writing about soon on refis and principal reduction).
It may seem fruitless to pursue good ideas in a climate that robs them of any oxygen, but with Ben’s help, perhaps a little air can get into the room.