Time for Bernanke to Ground the Helicopter

Now that President Obama has anointed Mr Bernanke for another four years he has the opportunity to get control of the economy.

What he needs to do right now is ground his helicopter and in the next report to Congress tell them to stop flying around in Jumbo Jets throwing money around.

He needs to do a “Greenspan” but on the government, not the private sector. Less of the “irrational exuberance” by Congress to spend money they don’t have should be his cry.

Any rational FED Reserve Chairman would add that it was not the time to re-invent the health care system by spending perhaps $1-2 Trillion the US does not have right now.

President Obama and Congress would be stuck. They’ll have to toe the FED line.

Mr Bernanke may be an expert on the Great Depression and may be right about the need to provide liquidity to financial markets despite the banking industries bad behaviour of hoarding the money he gives them.

But he is not an expert at getting out of a Depression. It’s not been done before. He has admitted openly that he will keep dropping money if he believes that is what needs to be done. That’s the easy part.

This is one big experiment with the national wealth of America and ultimately the world.

From the reading I’ve done the general consensus appears to be it is easy to dole out the money. The trick is to get it back without sending the economy into the Depression you were trying to avoid in the first place.

This has not been done before. The US is the largest economy on earth.

Even if Bernanke starts to grab back all that cash he will have the  President and Congress working against him taking on more debt to pay for health care reform and other politically motivated programs like maybe stimulus II.

With the mid-term elections looming in 2010 and Democrats on the back foot with the massive US Debt along with the Medicare revolt, it’s going to be tough. Government handouts will buy votes when the populace is in financial strife.

I wonder if Mr Bernanke will find the strength to go up against all that political power in Washington and make them control their spending?

If they don’t it will not go well for the world never mind the US.

If the health care bill gets passed in whatever form and the health care budget becomes 20% of the US economy that is equivalent to the US running two China economies inside America, since Chine is currently about 10% of the US economy.

Can you imagine that – that gives you some perspective I hope.

There is no way the US can finance all this spending through borrowing money without distorting the credit markets and taking finance away from the private sector.

Nor can they keep printing money as Mr Bernanke won’t want that option for fear of inflation.

Taxes are the last resort I suspect, but President Obama has promised not to raise them. The rich can always leave the US if taxes get too onerous.

Any and all of these take away money that would be invested and so we can assume that future investment returns will not be very good unless things change.

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