Ben Bernanke, who holds the unenviable position of Federal Reserve Chairman during a terrible economy, told Congress today that “the recovery is close to faltering.” Bernanke mentioned several short and long-term causes of economic weakness, with the overall tone of his opening remarks tending to reinforce at least short-term government intervention to stimulate the economy.
“The pattern of sluggish growth was particularly evident in the first half of this year,” Bernanke said, mentioning temporary factors such as how Middle Eastern unrest drove up oil prices, “and the disaster in Japan disrupted global supply chains and production, particularly in the automobile industry.”
This partial explanation recalls President Obama’s explanation of national economic struggles, which he has attributed to “the Arab Spring’s effect on oil and gas prices, the Japanese earthquake and tsunami’s effect on supply chains [and] the extraordinary economic uncertainty in Europe.”
But Bernanke cited longer term factors, such as “the increasing drag being exerted by the government sector” in the form of local governments cutting their spending. His understanding of the economy apparently assumes that government spending drives economic growth, despite the failure of such spending to prevent skyrocketing unemployment numbers over the last three years.
Even so, Bernanke also saidthat “a credible plan for reducing future deficits” is necessary, although he implicitly opposed sharp spending cuts by simultaneously calling for the government to consider “the implications of fiscal choices for the recovery in the near term.”
This morning, Rep. Ron Paul, R-Texas, held a congressional hearing during which he pushed for an audit of the Federal Reserve. Paul’s political PAC touted this hearing as an opportunity to “take Bernanke down.” Paul criticized the “secrecy of the Fed” and said that the Federal Reserve is sometimes “involved in political decisions – or at least in some private and secret decisions made to serve some political interest.”
