The Fed, Obama, the economy and Bernanke

"Bernanke says Federal Reserve ready to further stimulate the economy"  (LATimes)

How much of this is politics and how much if it is just good economics?  Is this really going to stimulate the economy?

"buying additional assets... in an effort to drive down long-term interest rates and stimulate economic growth."

How will this improve things? 

By reducing the "...core inflation rate… running [currently running] at an annual rate of 0.8%”

That’s low.  How much lower does he think he can push it?  Deflation is as big a problem as inflation.  This doesn’t make a lot of sense to me.

Fed Res Bank of SF:

"Changes in real interest rates affect the public's demand for goods and services mainly by altering borrowing costs, the availability of bank loans, the wealth of households, and foreign exchange rates.”

Investopedia:

"Monetary policy influences output and employment in the short run and can be used to smooth out the business cycle, but in the long run output and employment are dependent upon capital efficiency, labor productivity, savings and risk tolerance.  For example, a decrease in real interest rates lowers the cost of borrowing; that leads businesses to increase investment spending, and it leads households to buy durable goods, such as autos and new homes."

So at best the Fed has a "short" affect on the economy.

"In addition, lower real rates and a healthy economy may increase banks' willingness to lend to businesses and households."

I see the key word here as "may".

 "It can take a fairly long time for a monetary policy action to affect the economy and inflation. And the lags can vary a lot, too. For example, the major effects on output can take anywhere from three months to two years. And the effects on inflation tend to involve even longer lags, perhaps one to three years, or more."

So even if the government can affect the economy, and even if the government has done the right things, it may not have had enough time for it to take effect before the next election.

So my reading of this is that at best the government has a short effect on the economy and if it is able achieve any effect at all it can take as much as three years from policy to effect.

So quit blaming Obama for the economy.

And Bernanke.  His background is Wall Street.  I'm sure that he is a smart guy but I believe that he has a skewed perspective on the economy, due to his background.  He see things from a big business, Wall Street and big $ deals perspective as opposed to a pure economic perspective.

I've written more on this - see another post here.

Other Reference - Wikipedia:  http://en.wikipedia.org/w/index.php?title=Federal_Reserve_System&printable=yes