Tuesday, December 08, 2009

Article Response #4


1) Sanders is a proclaimed socialist. To merely state he's an 'independent' because he isn't a Democrat or Republican is misleading. In fact, the fact that both Bunning and Sanders both wish to hold Bernanke's reappointment should be telling.
2) Why is it just assumed fact that his actions (and those of Geithner and Obama) made things better? Economics is about balance, like supply and demand. When one changes, it exerts a force on the other (and possibly over many other things). Over the course of decades, more of the US, both government and personal finances were based on debt (largely due to the artificially low interest rates of the FED). When enough of that debt manifest itself in bad investments (i.e. subprime mortgages), a chain reaction of revoking credit began. This whole "bubble" was not only allowed, but encouraged by manipulation in the market by the FED. Now that that bubble burst, as the market began to divest itself of these poor investments and bad debt, as we started the difficult climb from badly extended credit to more sound investments, what did Bernanke do? He lowered interest rates, began printing of MASSIVE amounts of money, and intentionally TRIED to make credit, borrowing, and debt to get going again. This is what led to the crisis to begin with!!! Note that since he got approval to print trillions, has lowered interest rates to effectively 0% and Obama has injected billions into the economy, it's not surprising we've seen the short-term improvement we have. However, throwing money at the situation doesn't necessarily fix it. Remember that GDP has, as part of its measure, Government spending. So say the government were to massively raise taxes and spend trillions on welfare and unemployment handouts, GDP may actually increase. Would that realistically represent actual growth in our economy? Of course not. So just because we seemed to have a sliver of growth doesn't mean that we're on our way to recovery. And as for the evaluation of Bernanke, we cannot start with an assumed premise (things would have been worse had he not done what he did) and then go from there. Remember, Obama said that if we did NOT pass the stimulus, unemployment might get up to 8%, but that if we did pass it, it wouldn't rise past 7%. I'm not so confident in their prognostication abilities.

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