As the U.S. Government faced down its own deadline in 2012 before
the Bush tax cuts would expire and across-the-board budget cuts would commence,
the Federal Reserve, which had been struggling to prop up the economy by buying
bonds and keeping interest rates low, would, according to the Chairman, Ben
Bernanke, be largely powerless to do more in the face of a recessionary policy
on taxes and spending. "We cannot offset the full impact of the fiscal
cliff," he said of the Fed. "It's just too big." That he had
written a doctoral dissertation on the Great Depression and had specialized on
it as a professor at Princeton lends a lot of weight to his judgment on the
matter. However, he had also managed to be re-appointed to the Fed and thus
knew how to play the game. In the case of the automatic budget cuts, major
power-brokers, specifically in the military industrial complex, had a lot
riding on Congress and the White House making a deal that would obviate the
cuts in defense spending. The chairman of the Fed could have been carrying
their water.
Ben Bernanke, Chairman of the Federal Reserve, in front of the lights. Reuters
The full essay is at "The U.S. Economy Going over the Fiscal Cliff."
