Everyone is pouring over the latest statements by Fed chairman Ben Bernanke and German chancellor Angela Merkel. But what did they really say?
The short answer is "nothing".
For example, Bloomberg reports Merkel Says Germany Ready to Back Use of Current Euro Tools.
“In view of the current difficulties, it’s important to emphasize that we have created the instruments of support in the euro zone, that Germany is ready to work with these instruments whenever that is necessary and that this is an expression of our firm desire to keep the euro area stable,” the chancellor said. Merkel didn’t outline to which tools she was referring.
Four Questions, Four One-Word Answers
- Is Merkel backing any new procedures? No
- Is there a change of any kind? No
- Did she even say what tools she was talking about? No
- Was this even news? No
At first glance the Bloomberg headline looks significant. However, the words "current tools" say all you need to know.
I propose a more realistic headline: "Merkel Supports What Merkel Supports"
What did Bernanke Say?
The short answer is "nothing". The exceptionally long answer can be found in Chairman Ben Bernanke's Economic Outlook and Policy Before the Joint Economic Committee, U.S. Congress
Here is one key highlight regarding "fiscal cliffs" that merits further discussion:
Even as fiscal policymakers address the urgent issue of fiscal sustainability, a second objective should be to avoid unnecessarily impeding the current economic recovery. Indeed, a severe tightening of fiscal policy at the beginning of next year that is built into current law--the so-called fiscal cliff--would, if allowed to occur, pose a significant threat to the recovery. Moreover, uncertainty about the resolution of these fiscal issues could itself undermine business and household confidence. Fortunately, avoiding the fiscal cliff and achieving long-term fiscal sustainability are fully compatible and mutually reinforcing objectives. Preventing a sudden and severe contraction in fiscal policy will support the transition back to full employment, which should aid long-term fiscal sustainability. At the same time, a credible fiscal plan to put the federal budget on a longer-run sustainable path could help keep longer-term interest rates low and improve household and business confidence, thereby supporting improved economic performance today.
A third objective for fiscal policy is to promote a stronger economy in the medium and long term through the careful design of tax policies and spending programs. To the fullest extent possible, federal tax and spending policies should increase incentives to work and save, encourage investments in workforce skills, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. Although we cannot expect our economy to grow its way out of federal budget imbalances without significant adjustment in fiscal policies, a more productive economy will ease the tradeoffs faced by fiscal policymakers.
Ben Bernanke warns Congress that the U.S. faces a fiscal cliff. However, Bernanke does not want them to do anything about it now.
There is no change in stance here. Monetarist and Keynesian clowns never want to address fiscal cliffs in advance, bubbles in advance, regulations in advance, or anything else in advance, except of course when they are dead wrong about what to do.
As with Merkel, there is no change in Bernanke's stance, just a promise to do something later if the economy worsens. He also warned Congress they will need to do something about the U.S. fiscal cliff, but certainly not now.
Bernanke Speech Template
Blah blah blah, stimulus if needed, blah blah blah, fiscal cliff, blah blah blah, not now, blah blah blah, full employment, blah blah blah, depressed housing, blah blah blah, encouraging signs, blah blah blah, recovery,blah blah blah, maintain highly accommodative stance, blah blah blah, no inflation, blah blah blah.
Mike "Mish" Shedlock