Federal Reserve Chairman Ben Bernanke should resign for loosening monetary policy to the point that he has inflicted damage to the U.S. economy, said Marc Faber, author of the Gloom Doom and Boom report.
The Federal Reserve recently announced plans to buy $40 billion in mortgage-backed securities from banks every month until the economy and labor market improve, a monetary policy tool known as quantitative easing (QE).
The announcement marks the third time the Fed has rolled out quantitative easing measures to jolt the economy since the 2008 financial crisis, with the first round seeing the Fed snap up $1.7 trillion in mortgage securities and the second round seeing the Fed buy $600 billion in Treasury securities held by banks.
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
Critics say such policies plant the seeds for inflation down the road, weaken the dollar and artificially pump up stock prices, adding loose policies threw the country into its crisis in the first place by swelling a housing bubble that popped.
“If I had messed up as badly as Bernanke I would for sure resign. The mandate of the Fed to boost asset prices and thereby create wealth is ludicrous — it doesn’t work that way. It’s a temporary boost followed by a crash,” Faber said.
Stock prices rise amid QE, which works by pushing down long-term borrowing costs and by weakening the dollar in a way that stocks look attractive and then rise, creating a wealth effect that aims to encourage businesses to invest and hire and even households to borrow.
Unfortunately for the broader economy, only the wealthy benefit from rising asset prices, said Faber.
“QE helps rich people whose asset prices go up and whose net worth then increases but it doesn’t flow to the man on the street who is faced with higher costs of living with price rises,” Faber said.
“You just have a small economy that is booming, but the majority of the economy is damaged by QE.”
Bernanke himself has said that monetary policy is not a panacea and has repeatedly added that Congress must address fiscal issues to fuel more robust recovery.
At the end of this year, Bush-era tax cuts and other tax breaks are scheduled to expire, while automatic cuts to government spending kick in at the same time, a combination known as a fiscal cliff that could send the economy sliding into a recession next year if left unchecked by Congress, according to the nonpartisan Congressional Budget Office.
Lawmakers have resisted dealing with tax and spending issues in an election year, though some have suggested they could convene in early 2013 after elections and tackle the problem on a retroactive basis.
“If the fiscal cliff isn’t addressed, as I’ve said, I don’t think our tools are strong enough to offset the effects of a major fiscal shock so we’d have to think about what to do in that contingency,” Bernanke told a press conference to address monetary policy, according to Reuters.
“So I think it’s really important for the fiscal policymakers to, you know, work together to try and find a solution for that.”
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
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