Helicopter Ben To The Rescue!
"No Fed Plans To Provide More Support, Bernanke Says," so said The New York Times. The article described Federal Reserve Chairman Ben Bernanke's semi-annual testimony before the Senate Finance Committee yesterday.
In his policy update, Bernanke said that the "economic outlook remains unusually uncertain." While he tried to assure lawmakers that the central bank remains prepared to act and will remain flexible, Bernanke didn't elaborate, leaving investors doubtful that additional economic stimulus would be forthcoming. Without such a boost, some fear that the economy will sputter and potentially fall back into contraction-or the so-called "double dip".
With a good night's sleep, investors are rethinking their reaction to Bernanke's comments this morning, driving stock indexes higher. In fact, the Fed still has plenty of ammunition to stimulate the economy and Helicopter Ben is just the guy to do it. (This is a reference to Bernanke's famous 2002 speech, when he said that to fight deflation, "the U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." He was referring to a statement made by economist Milton Friedman about using a "helicopter drop" of money into the economy to fight deflation.)
With interest rates at zero, some argue that the Fed is out of bullets. Really? Not to Helicopter Ben! To wit, the Fed can:
- buy other government debt, which would lead to lower interest rates
- delay selling $1.25T of mortgage-backed securities it owns
- announce long-term intentions regarding short-term rates
- raise the long-term inflation target
Image by Flickr User DVIDSHUB, CC 2.0
