It was Ben Bernanke, currently the chairperson of the Federal Reserve who had criticized Bank of Japan for inertia during the time of deflation in that country. But today the Federal Reserve is taking the same course of inaction during these tough economic times when the economic recovery seems to be sliding. Only for a limited time the Federal Reserve purchased huge numbers of securities backed by mortgages with a long term objective but since March it has discontinued this practice. Since March the economic scenario has been going from bad to worse.
There was a slight change recently with the Fed changing its course and reinvesting the proceeds coming in from securities that were maturing into long-term bonds of the Fed. It is the minimum the Fed could do to stand up to criticism but it is nowhere near the plan that it should undertake.
In 2000 Bernanke has given the advice to the Bank of Japan that it should announce its future plans and policies. Specifically he opined that this would make more attractive borrowing in the private sector by saying that it would keep the rate of interest rates low till the deflation gave ground to inflation of 3% or 4%. Since today America seems to be in a worse condition than Japan of those years. The inflation of 3% would be to the interest of USA. But Bernanke has categorically rejected any such measure.
It seems Bernanke is overwhelmed with political considerations to openly cross swords with the officials of the Federal Reserve – particularly those presidents of the regions who are afraid of inflation although the danger from deflation is loud and clear. The sum total is that the plight of the unemployed is not being given any serious thought.
It has to be admitted that differences between the top officials can make it difficult to initiate policy changes. Glib talk by few of the officials of the Fed is already having a negative impact on the economy. Bernanke is not empowered to stop this random talking – this is understandable. But he should make it clear that he is not representing the overall policy of the Federal Reserve.
President Obama too is neglecting this policy. He bided his time till the 16th month of his presidency before giving the names to fill in the entire vacant posts in the Federal Reserve Board. If he had filled up those posts speedily the Fed would not have remained so passive; unfortunately not all of his nominees have are sitting behind their desks till now.
Julie Thompson, has been working on ForeclosureDataOnline.com studying the foreclosures market, helping buyers on the finer points of Dearborn foreclosed homes for sale.