The Fed is "afraid to do its job" for fear of right-wing criticism

The headline quote is Krugman talking; my brief comment below. Remember — the Fed by law has twin mandates:

• Low inflation consistent with economic growth
• Low unemployment

The current zero-interest-rate environment serves bondholders and kills fixed incomes. But that policy preference — sacrificing seniors to the bond market Bigs — is at least within the mandate.

But this is not a low-unemployment environment (the other mandate). What's a Fed to do?

Here's Krugman on that:

[M]y sense is that [Fed Chairman Ben Bernanke's] latest testimony, in which he declared that the Fed has the power to take action, that the economy is in really bad shape, but declined to, you know, actually take action, has left even his usual defenders more or less speechless.

It really makes no sense — except in terms of politics. ...

So Bernanke says that the Fed has the power to act, but won't. Why won't the Fed "do its job"? Krugman's explanation:

fear of being accused of helping Obama

That's Krugman, and the comment is damning. (Remember, Krugman knows Bernanke personally. Bernanke was once Krugman's dept chair at Princeton.)

The implications of this are terrible. It means (a) that the "independent Fed" actually is helping Obama — by shielding him from right-wing criticism. And (b) that the "opposition party" is leading the Democrats around by the nose.

But if you think that's bad, there's a worse explanation — The Fed is sacrificing the entire economy (and everyone in it) to serve the top .01%, including the banks, who need low-interest Fed-sourced borrowing to survive.

After all, the current situation is unsustainable. No demand, no recovery. No jobs, no demand. Q.E.D. (Latin for "thus it is destroyed").

Your pick. I think Krugman, as always, is just a tad generous. Me, a little less so.

GP

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