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http://www.nytimes.com/2010/11/19/opini ... nted=print
November 18, 2010
Axis of Depression
By PAUL KRUGMAN
What do the government of China, the government of Germany and the Republican Party have in common? They’re all trying to bully the Federal Reserve into calling off its efforts to create jobs. And the motives of all three are highly suspect.
It’s not as if the Fed is doing anything radical. It’s true that the Fed normally conducts monetary policy by buying short-term U.S. government debt, whereas now, under the unhelpful name of “quantitative easing,” it’s buying longer-term debt. (Buying more short-term debt is pointless because the interest rate on that debt is near zero.) But Ben Bernanke, the Fed chairman, had it right when he protested that this is “just monetary policy.” The Fed is trying to reduce interest rates, as it always does when unemployment is high and inflation is low.
And inflation is indeed low. Core inflation — a measure that excludes volatile food and energy prices, and is widely considered a better gauge of underlying trends than the headline number — is running at just 0.6 percent, the lowest level ever recorded. Meanwhile, unemployment is almost 10 percent, and long-term unemployment is worse than it has been since the Great Depression.
So the case for Fed action is overwhelming. In fact, the main concern reasonable people have about the Fed’s plans — a concern that I share — is that they are likely to prove too weak, too ineffective.
But there are reasonable people — and then there’s the China-Germany-G.O.P. axis of depression.
It’s no mystery why China and Germany are on the warpath against the Fed. Both nations are accustomed to running huge trade surpluses. But for some countries to run trade surpluses, others must run trade deficits — and, for years, that has meant us. The Fed’s expansionary policies, however, have the side effect of somewhat weakening the dollar, making U.S. goods more competitive, and paving the way for a smaller U.S. deficit. And the Chinese and Germans don’t want to see that happen.
For the Chinese government, by the way, attacking the Fed has the additional benefit of shifting attention away from its own currency manipulation, which keeps China’s currency artificially weak — precisely the sin China falsely accuses America of committing.
But why are Republicans joining in this attack?
Mr. Bernanke and his colleagues seem stunned to find themselves in the cross hairs. They thought they were acting in the spirit of none other than Milton Friedman, who blamed the Fed for not acting more forcefully during the Great Depression — and who, in 1998, called on the Bank of Japan to “buy government bonds on the open market,” exactly what the Fed is now doing.
Republicans, however, will have none of it, raising objections that range from the odd to the incoherent.
The odd: on Monday, a somewhat strange group of Republican figures — who knew that William Kristol was an expert on monetary policy? — released an open letter to the Fed warning that its policies “risk currency debasement and inflation.” These concerns were echoed in a letter the top four Republicans in Congress sent Mr. Bernanke on Wednesday. Neither letter explained why we should fear inflation when the reality is that inflation keeps hitting record lows.
And about dollar debasement: leaving aside the fact that a weaker dollar actually helps U.S. manufacturing, where were these people during the previous administration? The dollar slid steadily through most of the Bush years, a decline that dwarfs the recent downtick. Why weren’t there similar letters demanding that Alan Greenspan, the Fed chairman at the time, tighten policy?
Meanwhile, the incoherent: Two Republicans, Mike Pence in the House and Bob Corker in the Senate, have called on the Fed to abandon all efforts to achieve full employment and focus solely on price stability. Why? Because unemployment remains so high. No, I don’t understand the logic either.
So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.
Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.
And if Mr. Bernanke gives in to their bullying, they may all get their wish.
Among the comments to Krugman...
Elwood Anderson
Las Vegas NV
November 19th, 2010
1:49 am
The Fed isn't trying to create jobs. It's trying to stimulate the market to make the wealthy and the bankers whole, while destroying the economies of developing countries and the value of the dollar. The criminals are running the country. It's time for debtors to walk away from their debts and start spending their income. That will create demand and punish the creditors that are strangling governments and taxpayers around the world. What are they going to do, put everyone in jail? Who would clean their pools and wash their limos? If ordinary people take this lying down they are fools. Stop advocating for the wealthy and their bankers and start advocating for average people that are bearing the brunt of this mess. The Fed is doing absolutely nothing for the average Joe and Jane and their children and grandchildren.
AJD
New York
November 19th, 2010
1:49 am
I find Krugman's touting the weak dollar ironic, considering that only a couple days ago, the Times printed an article showing that the weak dollar was unlikely to help our economy and also unlikely to put much of a dent in the trade deficit.
He conveniently leaves out the fact that we have a huge trade deficit with Germany despite the euro being stronger than the dollar for years already, while according to The Washington Post, German manufacturers have lately been exporting a wide variety of goods to China.
The bottom line is that we make fewer and fewer products that the rest of the world wants to buy. This isn't because of our currency, but because of our policy over the last 30 years of basically encouraging companies to move manufacturing abroad. That's why we have such huge trade deficits, and it's not until we address the evisceration of our manufacturing base that we'll be able to close the gap.
Plus, weakening the dollar will ultimately be bad for the country. People on fixed incomes have the most to lose from inflation. While energy and food are left out of the CPI, the prices of both will go up. Because we hardly make any consumer goods in this country anymore -- not just unnecessary "toys" but things like clothing, kitchen supplies, you name it -- the prices of those will all go up as well. The same goes for higher education, public transportation and so forth.
Blaming our problems on China will do about as much to help us as blaming our problems on Japan did in the 1980s. In other words, it'll drum up some emotions and xenophobic sentiment, but it won't replace any of the manufacturing jobs we've lost, and we'll continue to see China develop as a superpower while its manufacturers move up the value chain and crank out better and better goods.
We're in very real danger of becoming a second-rate country. But if there's anyone to blame for that, it's us.
Crush:
http://counterpunch.org/hudson11222010.html
November 22, 2010
The Case of the China-Bashing Professor
Why Paul Krugman Waves the Flag for Uncle Sam
By MICHAEL HUDSON
Here’s the quandary that the U.S. economy is in: The Fed’s quantitative easing policy– creating more liquidity so that banks can lend more – aims at helping the economy “borrow its way out of debt.” But banks are not lending more, for the simple reason that a third of U.S. real estate already is in negative equity, while small and medium-sized businesses (which have created most of the new jobs in America for the past few decades) have seen their preferred collateral (real estate and sales orders) shrink. How can banks be expected to lend more to re-inflate the economy’s asset prices while wages and consumer prices continue to drift down? The “real” economy as a whole therefore must shrink.
What has made the argument over Fed policy so important over the past week is a series of exchanges between Republicans and Democrats. The deteriorating situation prompted a group of Republican economists and political strategists to publish an open letter to Federal Reserve Chairman Ben Bernanke criticizing the Fed’s policy of Quantitative Easing (QE2), flooding the economy with liquidity spilling over into foreign exchange markets to push the dollar’s exchange rate down. True enough, as far as this criticism goes. But it only scratches the surface.
Enter Paul Krugman, one of the most progressive defenders of Democratic Party policy. His New York Times op-eds usually rebut Republican advocacy for Wall Street and corporate interests. But he also indulges in China bashing. To “blame the foreigner” rather than the system is normally a right-wing response, yet Krugman blames China simply for trying to save itself from being victimized by the Wall Street policies he normally criticizes when labor is the prey. By blaming China, he not only lets the Federal Reserve Board and its Wall Street constituency off the hook, he blames virtually the entire world that confronted Obama’s financial nationalism with a united front in Seoul two weeks ago when he and his entourage received an almost unanimous slap in the face at the Group of 20 meetings.
Sadly, Krugman’s “Axis of Depression” column on Friday, November 19, showed the extent to which his preferred solutions do not to beyond merely marginalist tinkering. His op-ed endorsed the Fed’s attempt at quantitative easing to re-inflate the real estate bubble by flooding the markets with enough credit to lower interest rates. He credits the Fed with seeking to “create jobs,” not mainly to bail out banks that hold mortgages on properties in negative equity.
The reality is that re-inflating real estate prices will not make it easier for wage earners and homebuyers to make ends meet. Lowering interest rates will re-inflate real estate prices (“wealth creation” Alan-Greenspan style), raising the degree to which new homebuyers must go into debt to obtain housing. And the more debt service that is paid, the less is available to spend on goods and services (the “real” economy). Employment will shrink in a financial spiral of economic austerity.
Unfortunately, most economists are brainwashed with the trivializing formula MV=PT. The idea is that more money (M) increases “prices” (P) – presumably consumer prices and wages. (One can ignore velocity, “V,” which is merely a tautological residual.) “T” is “transactions,” for GDP, sometimes called “O” for Output.
Some 99.9 per cent of money and credit is not spent on consumer goods (the “T” in MV = PT). Every day more than an entire year’s GDP passes through the New York Clearing House and the Chicago Mercantile Exchange for bank loans, stocks and bonds, packaged mortgages, derivatives and other financial assets and bets. So the effect of the Fed’s Quantitative Easing (monetary inflation) is to inflate asset prices, not consumer prices and other commodity prices.
This is the key dynamic of today’s finance capitalism. It loads down economies with debt – and when debt service exceeds the surplus out of which to pay it, the central bank tries to “inflate its way out of debt” by creating enough new credit (“money”) to make real estate, stocks and bonds worth more –enough more for debtors to borrow the interest due. This is the deus ex machina, the external influx of credit enabling financialized economies to operate as Ponzi schemes. The dynamic is encouraged by taxing speculative (“capital”) gains at a lower rate than wages and profits. So why should investors finance tangible capital investment when they can ride the wave of asset-price inflation. The Bubble Economy turns into speculative “wealth creation.”
Can it work? How long will gullible investors bet on a pyramid scheme growing at an impossibly exponential rate, enjoying fictitious “wealth creation” as bankers load the economy down with debt? How long will people think that the economy is really growing when banks lend to an economy overseen by regulatory agencies staffed by ideological deregulators?
The bankers’ ideal is for the entire surplus over and above bare subsistence to be paid in the form of interest and fees – all disposable personal income, corporate cash flow and real estate rent. So when the Fed’s QE lowers mortgage interest rates, will this enable homeowners to pay less – or will it simply increase the capitalization rate of existing rental value?
The Fed’s cover story is that QE benefits homebuyers by reducing the debt they must take on. But if this were true, their gain would be the banks’ loss – and the bankers are the Fed’s main constituency. To the Federal Reserve, the economic “problem” is that falling (that is, more affordable) housing prices are killing the balance sheets of banks. So the Fed’s real goal is to re-inflate the real estate bubble (while spurring a stock market bubble as well, if it can).
A Wall Street Journal op-ed by Andy Kessler (also published on Friday, Nov. 19, the date of Krugman’s op-ed in The New York Times) pointed this out – but also recognized that the Fed would create a public relations disaster if it came right out and explained that its motivation in QE2 was to reverse the fall in property prices. “ Bernanke would create a panic if he stated publicly that, if not for his magic dollar dust, real estate would fall off a cliff,” and admitted that bank balance sheets still suffer from “toxic real estate loans and derivatives.” But the degree to which reported bank solvency is largely fictitious is reflected in the fact that the stock market value for the Bank of America (which brought Countrywide Finance) is only half its reported book value, while that of Citibank is off by 20 per cent.
Foreclosure is of course bad for homeowners, but it is even worse for banks, because of the financial pyramid of credit erected on the past decade’s worth of junk mortgages. The problem with Krugman’s analysis is his assumption that QE – intended to re-inflate the real estate bubble – is good for employment and indeed even for a renewal of U.S. competitiveness, not its antithesis. By focusing on trade and labor, he implies that the dollar is weakening only because of the trade deficit, not because of military spending and capital flight. And he assumes that re-inflating the real estate bubble – the Fed’s explicit aim – will make U.S. exports more competitive rather than less so! Most seriously, he asserts in his November 19 column, “the core reason for the attack on the Fed is self-interest, pure and simple. China and German want America to stay uncompetitive.”
This is not what I have been told in China and Germany. They simply want to avoid having instability disrupt their trade and domestic production, and to avoid having to take a loss on their international reserves held (mainly from inertia stemming from World Wars I and II when the United States increased its share of the world’s gold to 80 per cent by 1950). The U.S. Treasury would like U.S. banks and speculators to make an easy $500 billion at the expense of China’s central bank on slick speculative currency trading. The Fed would like to see the U.S. economy revive by looting other economies.
It’s not going to happen. The plunging-dollar standard of international finance is being wound down as fast as other countries are able to replace the dollar with currency swaps among themselves, led by the BRIC countries (Brazil, Russia, India and China). South Africa has just joined these countries as a fifth member, and oil exporters from Nigeria to Venezuela and Iran are associating themselves in the attempt to make the international monetary system less unfair and less exploitative. Krugman’s fellow Nobel Prize winner, Joseph Stiglitz has provided (seemingly ironically, also in a Wall Street Journal op-ed): “That money is supposed to reignite the American economy but instead goes around the world looking for economies that actually seem to be functioning well and wreaking havoc there.”
The Fed and Congress have told China to revalue its currency, the renminbi, upward by 20 per cent. This would oblige the Chinese government and its central bank to absorb a loss of half a trillion dollars – over $500 billion – on the $2.6 trillion of foreign reserves it has built up. These reserves are not merely from exports, much less exports to the United States. They are capital flight by U.S. money managers, Wall Street arbitragers, international speculators and others seeking to buy up Chinese assets. And they are the result of U.S. military spending in its bases in Asia and elsewhere – dollars that recipient countries turn around and spend in China.
Chinese authorities have tried to make it clear that what they object to is the U.S. policy of creating “electronic keyboard credit” at one quarter of a percent (0.25 per cent) to buy up higher yielding assets abroad (and nearly every foreign asset is higher yielding). The Group of 20 in Seoul Korea last week accused the United States of competitive currency depreciation and financial aggression, and countries stepped up attempts to shun the dollar and indeed, to avoid running trade and payments surpluses as such.
The bottom line is that there is no way that the United States can defend depreciation of the dollar on terms that oblige other countries to take a loss on their holdings. Investors throughout the world have lost faith in the dollar and other paper currencies, and are moving into gold or simply closing off their economies. Over the past year – ever since the BRIC meetings in Yekaterinburg, Russia, in summer 2009 – their response has been to avoid using the dollar, to protect themselves from aggressive U.S. capital flight seeking to raid their central banks, buy out their companies, raw materials and assets with “paper credit” and indeed to step up military spending.
Instead of supporting this attempt – a drive that has the positive consequence for world peace that it will limit U.S. military adventurism (much as the Vietnam War finally forced the dollar off gold in 1971), Krugman is using the crisis to attack China – as if its success is what is harming U.S. labor, not U.S. post-industrial pro-financial policies that have inflated the real estate bubble, privatized health care without a public option – and without even a bulk discount for U.S. Government drug purchases – and the failure to write down mortgages and other bank debts to the ability to pay.
Today’s China-bashing is much like the earlier attacks on Japan and other Asian countries in the late 1980s, demonizing successful economies for avoiding the predatory practices that have corroded American industry, “financializing” and post-industrializing the economy. The U.S. debt pyramiding that has occurred since 1980 has turned into a class war that has little economic justification. So blaming foreigners – for getting rich in the very same way that the United States has done ever since the North won the Civil War in 1965 – simply offers political cover for a status quo that is not working.
The two U.S. parties and their spokesmen find it easier to demonize policies that go beyond the merely marginal than to set about solving structural problems. So political discussion ends up by highlighting fairly insignificant policy differences. One would hardly realize that the problem facing U.S. industrial employment is that wage earners must earn enough to pay for the most expensive housing in the world (the FDIC is trying to limit mortgages to absorb just 32 per cent of the borrower’s budget), the most expensive medical care and Social Security in the world (12.4 per cent FICA withholding), high personal debt levels owed to banks and rapacious credit-card companies (about 15 per cent) and a tax shift off property and the higher wealth brackets onto labor income and consumer goods (another 15 per cent or so). The aim of bankers is to calculate just how much their customers can pay, defined as everything they make over and above basic subsistence costs and “non-discretionary” spending to the FIRE sector.
This is post-industrial suicide – and it is the road to debt peonage for American wage earners and consumers. China has created an economy that has managed – so far – to avoid financializing its firms. The government owns over half the equity in its commercial banks. According to its Ministry of Finance, assets of all state enterprises in 2008 totaled about $6 trillion (equal to 133 per cent of annual economic output.) The effect is that when loans are made to domestic enterprises – especially to partially or wholly owned by the government – the interest and financial returns accrues to the public sector, making it unnecessary to tax labor.
China understandably is trying to defend this system. Yet the Obama administration (echoed by Republican free marketers) has criticized it, especially for its public subsidy of solar energy investment to slow domestic pollution and global warming. Wednesday’s Wall Street Journal provided an almost comically hypocritical attack earlier last week, (Jason Dean, Andrew Browne and Shai Oster, “China’s ‘State Capitalism’ Sparks a Global Backlash,”) decrying China’s accelerated investment in solar power to free its economy (and its air quality) from oil imports and carbon emissions. “It leverages state control of the financial system to channel low-cost capital to domestic industries—and to resource-rich foreign nations whose oil and minerals China needs to maintain rapid growth.”
This policy prompted Charlene Barshefsky, U.S. trade representative under President Bill Clinton (who helped negotiate China's 2001 entry into the World Trade Organization) to complain that “powerful state-led economies like China and Russia … decide that ‘entire new industries should be created by the government,’ … it tilts the playing field against the private sector.” This is just what Japan did to promote its industrialization – by providing government credit intended to promote tangible capital investment, not extract financial rake-offs. “Vast swaths of industry still controlled by state companies and tightly restricted for foreigners,” complain the Wall Street Journal authors. “The government owns almost all major banks in China, its three major oil companies, its three telecom carriers and its major media firms.”
We are dealing with two quite different ideas of what the proper role of a financial system should be. Commercial banks in the West have created most credit for speculation and asset-price inflation over the last thirty years, not to fund capital formation and industry. The guiding idea of a public-sector bank is to promote long-term investment to raise productivity, output and employment. This is what has enabled China to succeed so rapidly while Western economies have let themselves be financialized. The Baltics, Iceland and now Ireland are examples of the disaster that financial neoliberals cause when given a free hand.
The moral is that China’s bank success – and its attempt to avert U.S. currency raiding and arbitrage speculation seeking to loot its foreign reserves – should be emulated, not accused of being economic warfare. This emulation is what the BRIC+ countries have announced as their goal. The Obama administration and European politicians certainly are making an obvious point in urging China to focus more on its own domestic market and accelerate the rise in its living standards. It is clear that markets in the United States and Europe are shrinking as debt deflation sets in.
China is not as economically self-sufficient in natural resources and water as the United States. This means that a sustained rise in its living standards will require spending much of the international savings it has built up. But at least it is on the right path. Can the same be said of America? Does it help to denounce China, or should we rather ask why its productivity, capital investment and living standards are rising while ours are declining?
Asking this question suggests the answer: China’s financial system is designed to promote a growing surplus, not siphon it off. A byproduct is to increase real estate and stock market prices – but this is a reflection of capital investment and progress, not a diversion of investment to fuel financial asset stripping as has occurred in the United States with increasingly arrogant greed over the past 30 years.
What Krugman and other economists advocating for wage earners and the economy at large should be concerned with is the danger of the Fed undertaking yet another back-door bailout its Wall Street constituency. Kessler suggests that the Fed should do just this – to “move the toxic debt onto the balance sheets of the FDIC and the Fed, and re-float the banks with fresh capital to open on Monday morning.”
You can’t blame China for this!
Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com
And here's Bernanke selling QE2 as medicine for the jobless:
Nov 19, 12:25 PM EST
Bernanke defends bond-purchase plan, warns China
By JEANNINE AVERSA
AP Economics Writer
AP Photo/Manuel Balce Ceneta
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke hit back at critics, both at home and abroad, who have challenged the central bank's $600 billion bond-purchase program.
In a speech in Germany, he argued that Congress must help support the Fed's program with further stimulus aid. And he issued a stern warning to China, saying it and other emerging nations are putting the global economy at risk by keeping their currencies artificially low.
Bernanke made the remarks Friday at a banking conference in Frankfurt.
Without more stimulus, high unemployment could persist for years, he said. But in making that argument, Bernanke risks heightening complaints that he's plunging the Fed into partisan politics.
The Fed's Treasury bond-buying program is intended to invigorate the economy in part by lowering interest rates, lifting stock prices and encouraging more spending. Lower interest rates on loans would prompt companies to borrow and expand.
And higher stock prices would boost the wealth and confidence of individuals and businesses, Bernanke has suggested. The additional spending would lift incomes, profits and growth.
But the Fed's program has triggered a barrage of criticism both within the United States and abroad.
Republican leaders in Congress and some Fed officials are among those who say they doubt the program will help the economy. They also worry it could unleash inflation and lead to speculative buying on Wall Street.
And at a summit of world leaders in South Korea last week, China, Germany, Brazil and other countries complained that the Fed's plan would give U.S. exporters a competitive price edge by flooding world markets with dollars. A weaker dollar makes U.S. goods more attractive to foreign buyers.
Emerging economies like Thailand and Indonesia also fear that falling Treasury yields will send money flooding their way in search of higher returns. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.
Still, European Central Bank President Jean-Claude Trichet insisted during a panel discussion after Bernanke's speech that he and the Fed chairman "strongly share the view that a solid strong dollar ... is very important."
The International Monetary Fund's head, Dominique Strauss-Kahn, said he believes that "wherever it's possible ... the support to growth is still something which is absolutely necessary."
He cited the U.S. as an example, saying the economy could pick up to 4 percent growth or slow to less than 2 percent growth, "and the consequences for the rest of the world would be huge." Still, he also said that in general there's a need to "restore confidence" by tackling debt problems.
Because countries are recovering from the severe global recession at different speeds, tensions among nations have risen, making it harder to find global solutions to global problems, Bernanke said. So-called emerging countries like China, Brazil and India are growing at much faster rates than "advanced" economies like the United States, Japan and Britain.
"Insufficiently supportive policies" in the United States and other advanced economies could "undermine the recovery not only in those economies but for the world as a whole," Bernanke warned.
By contrast, China and other emerging economies face the challenge of keeping growth robust, without igniting inflation, he said. By keeping their currencies artificially weak, China and other emerging economies are causing problems for themselves and for the stability of the world economy, Bernanke said.
His comments come days after a U.S. congressional report called on Washington to do more to force China to increase the value of its currency. On Friday, the Chinese Foreign Ministry countered that that constitutes interference in Beijing's internal affairs and accused the U.S.-China Economic and Security Review Commission of having a "Cold War mentality" and of harboring a grudge against China.
Bernanke argued that the Fed's Treasury bond purchases are needed to promote faster job creation and reduce the risk that very low inflation could turn into deflation. Deflation is a prolonged and destabilizing drop in prices of goods and services, wages and the values of assets like stocks or homes.
Even so, the Fed's program by itself can't fix all the economy's problems, Bernanke said.
"We don't want to overpromise, the effects are ... meaningful but moderate," Bernanke said of the Fed's bond-buying program during a panel discussion after his speech. "To the extent that we can get help from the private sector, from other policies, I think that's all very constructive, so I hope that we can."
He also called on Congress to step up.
"A fiscal program that combines near-term measures to enhance growth with strong confidence-inducing steps to reduce longer-term structural (budget) deficits would be an important complement to the policies of the Federal Reserve," he said.
Bernanke has previously warned that the economy is too fragile for the Congress to slash spending or boost taxes, even as he has made the case that lawmakers and the White House must craft a credible plan to reduce trillion-dollar plus budget deficits over the long term.
But the Fed chief amplified that warning. He is doing so as Republicans in Congress - coming off big wins in the midterm elections - are using their clout to push for less government spending and more fiscal discipline.
Republicans are upset with Bernanke because they think the Fed is overstepping its bounds with the bond-buying program. They argue that the Fed is printing money to pay for the government's massive debt.
Senate Minority Leader Mitch McConnell of Kentucky and incoming House Speaker John Boehner of Ohio had no immediate reaction to Bernanke's request for Congress to step up stimulus aid. Both GOP leaders blasted the Fed's bond-buying program earlier this week.
Senate Majority Leader Harry Reid of Nevada also didn't have an immediate response.
Republicans Rep. Mike Pence and Sen. Bob Corker, want the Fed's mission to be revamped.
They want the Fed to focus solely on keeping inflation in check. It now has a "dual mandate" from Congress: to keep both inflation and unemployment low.
Put on the defensive, Bernanke felt compelled this week to meet privately with lawmakers on the Senate Banking Committee to defend the Fed's program. A stream of Bernanke's colleagues have also been out making public appearances to back the Fed's action in recent days. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, and Sandra Pianalto, president of the Cleveland Fed, were on the circuit Thursday.
Bernanke warned the economic risks are high if Congress doesn't work alongside the Fed to stimulate the economy.
"On its current economic trajectory, the United States runs the risk of seeing millions of workers unemployed or underemployed for many years," Bernanke said. "As a society, we should find that outcome unacceptable."
----
Geir Moulson in Berlin contributed to this report.
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