Fed Chairman Backs Call for Higher Spending

The chairman of the Federal Reserve on Tuesday tacitly endorsed President Obama’s call for huge increases in spending and trillion-dollar deficits over the next couple of years, saying the economic crisis required aggressive action.

Spending, and not tax cuts, will solve the crisis. To believe otherwise is foolhardy and politically demagogic.

Though the chairman, Ben S. Bernanke, did not endorse any of Mr. Obama’s specific proposals, he echoed the president’s call for bold government action to address the economy’s immediate travails and pointedly refused to criticize his longer-term plans.

He can't be stepping into the middle of politics; how I wish other Fed chairmen had been equally prudent.

Mr. Bernanke, a Republican who was appointed by President George W. Bush, provided Mr. Obama and Democratic lawmakers with crucial backing for the political battles ahead. His comments were reminiscent of the support that his predecessor, Alan Greenspan, gave to Mr. Bush’s call for tax cuts in 2001. Many lawmakers in both parties said Mr. Greenspan’s comments had helped override Democratic objections to Mr. Bush’s tax cuts.

Putz. Another bad decision by Greenspan.

Mr. Bernanke, warning that the economy had yet to show hardly any sign of recovery, brushed aside objections by Republicans that Mr. Obama’s plans would lead to a dangerous growth of government.

Politics, and foolishness.

Republican lawmakers tried to draw the Fed chairman into their corner, to no avail. “There is in this budget a massive movement of the government to the left, in other words a massive expansion of the government,” warned Senator Judd Gregg of New Hampshire, the committee’s ranking Republican.

Expansion? Isn't that what Ronald Reagan and George Bush also did?

But Mr. Bernanke simply said that Congress and the White House needed to start thinking now about how to bring the federal budget back to normal.

Recovery first, then, when the signs are clear that the economy is back on track, sure, look to cut spending; but cut too early, and another recession will follow.

Lawmakers in both parties chastised the Fed and the Treasury for providing $30 billion more to the American International Group, the insurance conglomerate that had already received three rounds of government help totaling $152 billion.

As distasteful as it is, the company has to be saved. Once stable, it should be divided up, sold off, and let Hank Greenberg go jump in a lake.

Mr. Bernanke, in an unusually emotional response, criticized the insurance giant as making reckless bets that jeopardized the entire financial system. “If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one,” he said. Saying that A.I.G. had “exploited a huge gap” in the regulatory system, Mr. Bernanke said it became a “hedge fund, basically, that was attached to a large and stable insurance company” and made “huge numbers of irresponsible bets.”

Lack of regulation allowed AIG to become a monster.