A quote from Tass, in line with expected official policy. Clear, concise, yet, at the same time, ridiculous.
Tass said that the Central Committee of the Communist Party and the Government "inform with deep sorrow the party and the entire Soviet people that Leonid Ilyich Brezhnev, general secretary of the CPSU Central Committee and President of the Presidium of the Supreme Soviet (the nominal parliament), died a sudden death at 8.30 am on 10 November 1982.
"The name of Leonid Ilyich Brezhnev, true continuer of Lenin's great cause and an ardent champion of peace and communism, will live forever in the hearts of the Soviet people and the entire progressive mankind."
Contrast that with this mass of incoherent and inconsistent gibberish from the transcript of Bernanke's press conference. And more ridiculous than Tass in my opinion.
But in any case, while there's certainly a lot of uncertainty about exactly where the national rate of unemployment is, clearly at 8 1/2 percent, I think we're comfortably above anybody's estimate and for that reason, we still consider the labor market to be obviously quite slack.
Well, your first question, our ability to forecast three and four years out is obviously very limited. There's no question about that. Nevertheless, we have to make a best guess, a provisional plan, in the same way that—a firm making an investment, has to make a best guess or provisional plan about where the economy and the industry is going to be over a number of years.
So I'm not going to get involved in political rhetoric, I--I'd just going to stay really away from that, I have a job to do.
In other words, a bank which is thought to be too big to fail gets an artificial subsidy in the interest rate that it can barrow at and by having additional capital requirements that tends to equalize the cost of funding to different banks and reduces the incentive of banks to get large just to create the impression of being too big to fail.
And so one implication of our extension of our expected point of take-off to late 2014 is to imply that the initial sales from our balance sheet, which are again far down the road but--that begins that will be later than previously thought. That will be presumably in 2015. So we do expect to hold our balance sheet at a high level for a longer period.
There seems very likely that principal forgiveness could be helpful depending on how it's structured in reducing delinquencies. There are also some potential drawbacks, one of them is the fact that the amount of negative equity in the United States is about 700 billion dollars which is enormous,and so there is no conceivable program that is going to put everybody in the country above water, and so I think the issue then becomes, if we have 20 or 25 billion or whatever the number may end up being in this settlement, you know, what is the most cost effective way to help as many people as possible, and I think that's an ongoing debate, but with respect to principal reduction, I’ve you know I've spoken about this in the past and it certainly has some advantages, a lot depends on how it's structured, and a lot depends on what the alternatives are that you're considering.
Now that being said, as I mentioned earlier, if the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then more, our framework, the logic of our framework says we should be looking for ways to do more, it's not completely straightforward because, of course, we're now dealing with a variety of nonstandard policy tools, we can't just lower the federal funds rate 25 basis points like in the good old days but your basic point is right that, you know, we need to adopt policies that will both achieve our inflation objectives and help the economy recover as quickly as is feasible and I would say that your question, actually and earlier question, shows a benefit of explaining this framework because the framework makes very clear that we need to be thinking about ways in which we can provide further stimulus if we don't get some improvement in the pace of recovery and normalization of inflation.
So, I think there are good reasons from a dual mandate perspective to have inflation greater than 2 percent.
My own view thinking about the effects, for example, of additional purchases, additional securities purchases, I'm--I've been pretty satisfied in the sense that, in the following sense, that purchases do seem to have the desired effects on financial conditions. They tend to ease financial conditions, they tend to lower interest rates, they tend to strengthen asset prices and those are exactly the kinds of things that monetary policy normally does in order to try to provide stableness to the economy.
I might have commented on Zach's question that our two main tools at this point, given that short-term interests are close to zero are assets purchases, but the other is communications and to the extent that we can communicate that rates will be lower for longer, that will ease financial conditions and be a way that we can affect the state of the economy, and that's part of the reason other than just general desire for transparency that we brought out some of these ideas at this point.
On the 2 percent, again, that's where the United States has been for many years. That's where most Central Banks are around the world. There's a very good reason for it which is to avoid deflation which is very negative. I think the argument that, you know, the value of your dollar, the declines at 2 percent a year is not really a very good one unless you're one of those people who does their lifetime saving in the mattress. Most people invest in various kinds of instruments receiving rate of interest. And now it's true as been pointed out that for the moment that interest rates are pretty low they're still positive but over a longer period of time if you--even if you have money in a CD or some other investment vehicle, the interest rate will compensate you for the--for inflation. I mean the two will be tied together. And so, they really shouldn't be, you know, levels of inflation this low, interest rates should pretty much fully compensate for the losses to savers. But I would reiterate that we are not unaware of the problems that low interest rates cause for savers, cause for pension fund contributions, insurance companies, and other parts of the economy and we do try to take that into account as we think about other ramifications of our policy.
But what I would say is the following, is that what I've tried to convey to Congress and I think many other economists have taken the same view, is that responsible fiscal policy has at least two components at this point. One is of course importantly to achieve fiscal sustainability. And to achieve fiscal sustainability over a long period of time we need to be acting soon, now would be preferable, to making credible commitments to reducing spending, to improving our programs, to modifying or simplifying our tax code and so on.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.