Filed under: Economic data, Politics, Presidential elections, Housing, Federal Reserve

After watching part of Fed Chair Ben Bernanke’s testimony before Congress this morning, it’s clear that he supports economic stimulus but does not want to exacerbate long-term deficit problems by making the stimulus permanent. I give him credit for trying to strike a healthy balance between helping the economy in the short-term without making the deficit worse. Although no politician will dare say this, as I posted here, I think the right answer is to let the recession happen without government interference.

Any presidential candidate who does not support either fiscal stimulus — in the form of a tax rebate or a government check to citizens — a tax cut, or both is cruising for a bruising. That’s because in an election year, a politician who does not get on the bandwagon will be severely criticized by rivals for not caring about people.

There are two reasons I think economic stimulus is the wrong answer. First, it will have the negative consequence of increasing the Federal deficit which will lead to more borrowing. This will contribute to inflation and the further decline of the dollar. Consumers will be squeezed further as they suffer due to rising unemployment and stagnant wages even as prices of energy and food keep going up.

Continue reading Why Bernanke’s wrong to support stimulus

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This entry was posted on Thursday, January 17th, 2008 at 10:44 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.