Ben Bernanke met behind closed doors yesterday with Republican Senators. I never remember any Federal Reserve chairman meeting this way with members of one political party.
His remarks are not posted on the website of the Federal Reserve. This, too, is unheard of.
At the meeting, he assured the Senators that the Federal Reserve System would not bail out Europe.
Never before has any FED chairman made a political promise of this nature — and to just one political party’s representatives. He was speaking for the FED. But he cannot do this. The Federal Open Market Committee (FOMC) votes on this. He has only one vote.
This tells me two things: (1) the crisis in Europe is moving toward a panic; (2) Bernanke knows that if the FED bails out Europe, Congress will move to restrict the FED’s authority.
There are two flash points here. He recognizes that the FED is under the gun. Congress will no longer tolerate using FED funds to bail out European banks. Never before has the FED been this much on the defensive.
MarketWatch did reveal this much: Tennessee Senator Bob Corker said: “”I think people walked away knowing he has no intentions whatsoever of furthering U.S. involvement in the crisis.”
Bernanke also told lawmakers that the U.S. economy can be hit if Europe starts to unravel, said Sen. Mike Johanns, a Republican from Nebraska. Sen. Richard Shelby, the Republican chairman of the Senate Banking committee, said that the Fed chairman spoke with some candor about the crisis. “The situation is bleak,” Shelby said.
What could the FED do? It does not own euros. At best, it can make dollars available. It has already announded this on November 30.That will hold down the price of the dollar. It will not bail out European banks.
Europe is now totally dependent on the European Central Bank. The head of the ECB is staying mute.