What Has The Fed Done?

What can the Federal Reserve do? With the U.S. economy at risk of a double-dip recession, the central bank lacks tools to do anything. (Washington Post) [ Oh I’d say they’ve done quite enough … wouldn’t you? … In his June 7 speech, Fed Chairman Ben Bernanke stated, “the best way for the Federal Reserve to support the fundamental value of the dollar in the medium term is to pursue our dual mandate of maximum employment and price stability, and we will certainly do that.”

.. Bernanke’s results .. since Ben took the reins:

Feb ’06 – April ’11

Items in a Typical Budget	% Change
Food and Beverages	16.54%
Water and sewer and trash collection services	31.88%
Rent of primary residence	13.82%
Housing	8.68%
Fuels and Utilities	11.93%
Apparel	4.83%
Medical Care	20.11%
Gasoline (all types)	65.12%
Transportation	23.36%
Tuition, other school fees, and childcare	29.28%
Recreation	2.87%

 ..  The standard unemployment rate most often used by the Fed is currently at 9.1%, up 90% since Bernanke started.  The more inclusive (realistic) U6 number stands at 15.8%, up 75% in the same period.  The Civilian Participation Rate has declined 2.87% to 64.2%.

This is the lowest level the U.S. has seen since March, 1984.  The decline amounts to 8,946,844 fewer Americans in the labor force.  Had they not dropped out because of a lack of jobs, the “official” unemployment rate would be significantly higher.  While we can debate the meaning of the term maximum employment, it is clear that the jobs data has deteriorated considerably since Bernanke took the reins at the Fed.  ..

In conclusion, it is evident that Ben Bernanke is failing his mandates.  We believe it must come down to one of the following reasons:

1.       Bernanke does not know how to achieve his mandates;

2.       The policy tools employed don’t work;

3.       He does not have the ability to implement policies that would work;

4.       He is not trying to achieve his mandates;

5.       He has goals other than his legal mandates;

6.       He does not look at the data, and believes he is succeeding.

Matt Marcewicz &  Robert Barone, Ph.D.

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