Bernanke gave a presentation in front of U.S. Senators, and they all played puppy dogs.
Elizabeth Warren, the ersatz Cherokee Indian squaw from Harvard, asked him why the Federal Reserve has not come up with a solution to the “too big to fail” banks. Bernanke said they’re working on it.
There were questions about how the Federal Reserve will ever get out of its portfolio of government IOUs. The portfolio is triple what it was in September 2008. Bernanke said they’re working on it.
He then chided Congress for not calling to a halt the automatic spending cuts. This was pure Bernanke. In testimony after testimony over the last three years, Bernanke has warned Congress to get its fiscal house in order. Otherwise Bad Things Will Happen.
Yet he always tells Congress that fiscal responsibility must begin later, after this economy starts booming. In other words, Congress should get fiscally responsible in the distant future. Not now. This is called — with apologies to Dr. Bernanke — “speaking with forked tongue.” In July of 2012, he told the Senate Banking Committee this.
The second important risk to our recovery, as I mentioned, is the domestic fiscal situation. As is well known, U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority. At the same time, fiscal decisions should take into account the fragility of the recovery. That recovery could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken.
In short, the unsustainable should be sustained for as far as the eye can see.
He denied that the Federal Reserve is engaged in a currency war. You know what a currency war is: creating fiat money in an attempt to hold down the dollar’s international price by means of a massive increase in the supply of dollars. He insisted that the FED is doing no such thing.
He then went on to defend his policy of creating $1 trillion a year to buy Treasury bonds and Fannie/Freddie bonds.
He assured the Senators that the decline in GDP in December was a fluke. The economy is growing.
He assured them that the stock market is not overvalued.
They bought all of it — hook, line, and sinker. They always do.