Assessing the Federal Reserve Board’s Chairman

Ben_Bernanke_official_portraitQ:  Is Federal Reserve Board Chairman Ben Bernanke running the “most inappropriate monetary policy in history,” as claimed by a noted Wall Street hedge fund manager?

A noted Wall Street hedge fund manager recently severely criticized Federal Reserve Board Chairman, Ben Bernanke, for running the “most inappropriate monetary policy in history”.  Is this an accurate description or far from the mark?

Chairman Bernanke has led the Federal Reserve through an extremely difficult period and helped prevent a U.S. and global financial meltdown.  The current path of extraordinarily low interest rates and swelling the Fed’s balance sheet at a rate of $1 trillion a year does mark unchartered territory.  It entails sizable risks, including another asset price bubble or higher inflation down the road.  Scaling back or ending these policies could be disruptive to both markets and the economy, but such policies cannot be sustained.

Mr. Bernanke’s rating in history will ultimately depend on the Fed’s exit strategy and how it implements that strategy.

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ImageBy: Dr. Lynn Reaser

It has been nearly three years since the “Great Recession” officially ended, but many Americans are gripped by a sense of malaise.  Unemployment has eased but is still high.  Recent attention has also focused on the gap between the rich and the poor.  Some are asking the question:  “Is income inequality a threat to our prosperity?”

While the frustration of those asking the question is understandable, the answer is “no”.  America’s core values do embrace equal opportunities, but this does not imply equal outcomes.  Some will work harder than others, incur greater risks with new ideas and businesses, or just possess greater talents than others that will be rewarded.

A company where everyone is paid the same regardless of how well they perform would certainly give little incentive to be one’s best.  Taking such a model nationwide would be a recipe for mediocrity not prosperity.

America does need to do a better job in lifting the incomes of the poor by improving a woefully inadequate education system.  That should be the focus, not dissuading those who would strive for excellence. 

The Budget Nemesis—Is the Latest Plan Credible?

Q & A with Dr. Lynn Reaser
by: Dr. Lynn Reaser

Paul Ryan, Chairman of the House Budget Committee, has released a new plan to reduce the budget deficit and size of the nation’s debt burden relative to the economy over time.  Is it credible?
The answer is a reserved “yes” although many more details need to be spelled out and near-term prospects for Congressional passage are nil.  Still, the proposal belongs on the table.

Under the Ryan plan, compared with a long-run 18% average, by 2030 federal revenues would amount to 19% of GDP.  Spending would equal about 20% of GDP, erasing most of the deficit.  The shares of social security, medicare, and medicaid would all be equal or larger than in 2011.

Two questions, however, need to be answered.  What tax deductions would be cut to allow a new tax system of just two brackets:  10% and 25%?  What programs would be cut to reduce the share of discretionary spending to about 6% of GDP versus the 8% or more under current law?  Deficit reduction will be hard but necessary.

Q&A with Dr. Lynn Reaser

ImageBy: Dr. Lynn Reaser

Q: Are the early positive signs of increased holiday spending signs for an upswing in the economy for 2012?

 Yes.  Consumers do appear to be more willing to spend as many households have reduced their debt burdens and interest rates have dropped.  Still, many headwinds face the economy.  Europe’s sovereign debt problems persist and the region faces a recession or exceedingly slow growth next year.  The U.S. could see a significant drag if unemployment benefits and payroll tax cuts are not extended, while the long-term deficit issue has not yet been solved.  Businesses remain uncertain, which will likely keep a lid on job growth.  On balance, more U.S. consumer spending points to a better 2012 but growth is likely to be only moderate.

Q&A with Dr. Lynn Reaser for Recent College Graduates

by: Dr. Lynn Reaser

Q: If I’m a graduating college senior and can’t get a job in my field, should I go on to graduate school this fall? The alternative is getting a job in some other sector in the meantime and at least gaining work experience.

A:  Yes.  Although there is no guarantee, the job market should gradually strengthen over the next two to three years.  More education and training could give you the competitive edge.   To further enhance your resume, gain some work experience in the summer or while in school either on a paid basis or as an unpaid intern.  Your school or work decision should, however, consider your financial situation.  If you are already encumbered with a large student loan burden, the addition of more debt for graduate school could become unwieldy.  In that case, taking a break to earn some money might be a prudent decision.

Tax Cuts?

Q: Should Congress extend the Bush tax cuts for all taxpayers, even if it means an extra $700 billion over ten years in revenue losses from those earning more than $250,000 annually?

Yes. The federal government is primarily in deficit not because taxes are too low but because spending is too high.  $70 billion of additional revenue per year from not extending the tax cuts will not make much of a dent in an annual deficit of around $1 trillion.  Penalizing successful small businesses and entrepreneurs with higher tax rates is also not the way to encourage more innovation and hiring.  We need to focus on encouraging better economic and job growth, while addressing the deficit problem through tax and entitlement program reform, rather than pitting higher income versus lower income Americans.