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July 14, 2011 2:00 PM Bernanke warns policymakers: don’t cut too much

By Steve Benen

The Federal Reserve has hinted this week that it’s concerned about the state of the economy, and may yet consider additional intervention efforts. But Fed Chairman Ben Bernanke reminded lawmakers today that it’d sure be helpful if they didn’t make things worse by taking a lot of money out of the economy.

Federal Reserve Chairman Ben Bernanke warned Congress on Thursday that overzealous cuts to government spending could derail an already fragile recovery and said a U.S. debt default could wreak financial havoc.

“I only ask … as Congress looks at the timing and composition of its changes to the budget, that it does take into account that in the very near term the recovery is still rather fragile, and that sharp and excessive cuts in the very short term would be potentially damaging to that recovery,” Bernanke told members of the Senate Banking Committee.

My expectations are probably a little too low, but I’m always a little relieved to hear Bernanke talk this way.

Economic growth is awfully weak and the unemployment rate has inched higher, not lower, in recent months. It’s against this backdrop that the only topic policymakers are willing to discuss is major spending cuts, which necessarily takes money out of the economy when we need the opposite.

I assume Republicans will ignore this. After all, Bernanke pleaded with them months ago not to screw around with the debt ceiling, and they did the exact opposite.

But I think Washington needs the occasional reminder about the basics of supply and demand. A fragile recovery can break if Congress and the White House agree to lay off public-sector workers and weaken demand when it needs to be strengthened.

At his press conference the other day, President Obama shot down the notion that he’s pushing for increased revenue right away. “Nobody is looking to raise taxes right now,” he said. “We’re talking about potentially 2013 and the out-years.”

What’s less clear to me is when the proposed spending cuts would take effect. Here’s hoping everyone, on both ends of Pennsylvania Ave, remember Bernanke’s warning that “sharp and excessive cuts in the very short term would be potentially damaging to that recovery.”

Postscript: On the debt ceiling and the potential default, Bernanke also told the Senate Banking Committee, “It would be a calamitous outcome. It would create a very severe financial shock that would have effects not only on the U.S. economy but the global economy.”

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

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  • c u n d gulag on July 14, 2011 2:12 PM:

    I don't think Big Ben is helping things any.

    Damaging the economy is the Republicans GOAL!

    Maybe if right out of the gate, all of the Democrats had said, ala Monty Python:
    "Oh, No! NOT the Comfy Keynesian solution! It'll DESTROY the economy! NO!!!!!!!!!"

    They don't give a sh*t about anything other than power. Not the country - and certainly NOT the people.

    PARTY UBER ALLES!!!

  • Objective Dem on July 14, 2011 2:16 PM:

    Bernanke is one of the few people who have the ability of making clear strong statements that move the debate and divert us from the pending man-made (actually republican-made) disaster. We need him to step up and be a leader.

  • Josef K on July 14, 2011 2:19 PM:

    Two problems:

    1. Bernanke is practically conjoined with TARP and the '08 bailouts, which leaves any advice he offers with a bad taste in one's mouth. And...

    2. He's clearly an intellectual, which means the Tea Partiers will automatically dismiss whatever he's saying as "elitist".

    Apart from those two points, I can't really argue with him here.

  • Joe Friday on July 14, 2011 2:22 PM:

    * Bernanke: "sharp and excessive cuts in the very short term would be potentially damaging to that recovery"


    * On the debt ceiling and the potential default, Bernanke also told the Senate Banking Committee, "It would be a calamitous outcome. It would create a very severe financial shock that would have effects not only on the U.S. economy but the global economy."

    This is WAY too much reality for the RightWing crazies to cope with.

  • DisgustedWithItAll on July 14, 2011 2:26 PM:

    "But I think Washington needs the occasional reminder about the basics of supply and demand."

    Didn't everybody get the memo? A University of Chicago economist refuted supply and demand sometime last week.

  • tamiasmin on July 14, 2011 2:43 PM:

    supply: easily and fluently, without stiffness or awkwardness

    demand: an anagram of damned

  • bdop4 on July 14, 2011 2:58 PM:

    With his focus on debt reduction and away from true job creation, Obama is guaranteeing a shitty economy in 2013.

    He will probably win reelection, but Dems running for office should probably not run lockstep with his platform unless it changes radically in the coming months.

  • bdop4 on July 14, 2011 3:00 PM:

    Correction to above: "With his focus on debt reduction and away from true job creation, Obama is guaranteeing a shitty economy in 2012."

  • yellowdog on July 14, 2011 3:13 PM:

    When is the last time you heard a Fed Chairman use the word "calamitous"?
    Synonyms: catastrophic, ruinous, devastating

    This is as hard-edged as economist-speak gets. You're not likely to see Bernanke leading a parade to the Capitol, but if you hear more from him in the next few days than you ever have, it's because he is still trying to find the grown-ups in the Republican Party he can talk to. He's probably thinking, Isn't it time for Cantor to go back to the frat house and paddle the pledges? He's trying to play ball in a league he does not understand.

  • Texas Aggie on July 14, 2011 4:15 PM:

    I agree that Bernanke is not going to be listened to by the republicans. As far as they're concerned, he's a Democrat because he's part of Obama's cabinet. That he is head of the Fed which isn't part of the administration and that Bernanke was appointed by Bush is a bit confusing for their little minds. It's a lot easier to think Bernanke-Democrat.

  • Joe Friday on July 14, 2011 5:00 PM:

    Texas Aggie,

    "I agree that Bernanke is not going to be listened to by the republicans. As far as they're concerned, he's a Democrat because he's part of Obama's cabinet. That he is head of the Fed which isn't part of the administration and that Bernanke was appointed by Bush is a bit confusing for their little minds."

    Well, technically, the 'Federal Reserve' is a quasi-governmental agency that is part of the Executive Branch (as opposed to the Federal Reserve banks which are private-sector), which is why the POTUS appoints the Chairman, but I do agree with your various points that perception overcomes reality in this regard.

  • Sam Simple on July 14, 2011 5:13 PM:

    Very true, Texas Aggie. To comprehend macroeconomics requires big thinkee, which Repukes no have.

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