In his speech today about the economic outlook, Federal Reserve Chairman (and former George W Bush Council of Economic Advisors Chairman) Ben Bernanke warned that although closing the long-term budget gap is important, policymakers should avoid counterproductive near-term austerity budgeting of the sort that’s failed in the United Kingdom. Specifically, Bernanke cautioned that “a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery.”
Bernanke also rebutted the growing chorus of hard money fanatics (including Rick Santorum, Paul Ryan, and Tim Pawlenty) who’ve taken to accusing Barack Obama of a devious plot to “debase” the currency:
Slow growth in the United States and a persistent trade deficit are additional, more fundamental sources of recent declines in the dollar’s value; in particular, as the United States is a major oil importer, any geopolitical or other shock that increases the global price of oil will worsen our trade balance and economic outlook, which tends to depress the dollar. In this case, the direction of causality runs from commodity prices to the dollar rather than the other way around.
Bernanke’s comments were disappointing in that he promised no new monetary stimulus for the economy despite high unemployment and what he conceded to be a bleak economic outlook. Still, his remarks on fiscal policy and exchange rates—coming from a man who counted as a conservative economist in good standing just a couple of years ago—are an important reminder of how far out of the mainstream the American right has swung since the 2008 election.