Bernanke Stands Up to GOP Bullies

By now, most people have heard that Republican Congressional leaders sent a letter to the Fed - an institution that is supposed to be insulated from political pressure - suggesting the Fed refrain from further intervention in the economy. This, of course, comes on the heels of Rick Perry's mafioso-style warning that Bernanke might not want to print any more money between now and election time (if he likes his knee caps):



I agree with Stan Collender that the GOP letter is really a politically-motivated plea to let the economy fail. At this point, the Republicans believe they can stop any fiscal measures that might actually spur the faltering economy and this is their effort to forestall any monetary measures that might actually boost growth.

Paul Krugman - like Stan Collender - noted that the letter was politically motivated, but conservative, traditionally Republican economist Scott Sumner went so far as to imply the GOP letter was treasonous. And really, what do you call it when a political party intentionally and systematically blocks all paths to recovery during the most severe financial crisis since the Great Depression?

Thankfully the Fed - despite borderline physical threats from Perry and unified pressure from GOP Congressional leaders - decided the economy needed additional monetary stimulus (which it obviously does). Bernanke's policy - known as a twist operation - shifts the makeup of the Fed's bond portfolio, selling $400 billion in short-term bonds and using the proceeds to buy bonds with longer term maturities:

The Fed’s strategy is often called a “twist” operation because it simultaneously pushes long-term rates downward and short-term rates upward. And that is exactly what happened in financial markets after the announcement. The interest rate on 30-year Treasury bonds fell two-tenths of a percentage point to drop below 3 percent for the first time since records were kept.

In addition to the twist operation, the Fed also announced it will begin re­investing the proceeds of mortgage-related securities it owns into the same types of securities. This is intended to increase demand for these investments and thereby make it cheaper for mortgage lenders to get the money they use to make home loans.

The general outlook - from liberal economists such as Jared Bernstein - is that these policies will be helpful, but without Congressional action (Obama's Jobs Bill), it won't be enough. Given GOP attempts to block the Fed, it seems likely they'll do everything in their power to thwart Obama's Jobs Bill and with it, America's chance at economic recovery.

Cross-posted at Daily Kos.