Bernanke: Yes we Keynes

Guambat has been critical of QE2, not necessarily because of what it is, but because of what it is not. It is not fiscal policy, and Guambat fears that monetary policy has shot its wad.

As was said in Saving whose asset ?,

Keynes may not have been entirely right. At least, it may be that not all Keynesian follower's ideas have all worked out as planned.

But Guambat is now pretty sure that a busted economy needs real productive growth that comes with real spending on the ground that creates jobs and demand and tangible production.

Particularly in these circumstances, monetary policy in the main or on its own, cheap currency and artificially inflated asset prices is nothing but a bunch of fairy floss, peddled by people who know exactly what they're doing and grabbed up by people who don't know what's good for them.

And, at some point after the sugar rush, look out for the big let down.

Bernanke has finally, it seems, also accepted publicly the limitations of monetary policy. In a speech on November 19, he said,

In sum, on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years. As a society, we should find that outcome unacceptable.

Monetary policy is working in support of both economic recovery and price stability, but there are limits to what can be achieved by the central bank alone. The Federal Reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs.

However, in general terms, a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve.

That may not go down real well with the "don't tax, don't spend" Tea Party and other conservative members of Congress.