Bernanke’s recent comments on “the financial crisis and the Federal Reserve’s response in its capacity as liquidity provider of last resort” can be found here.
It is an interesting term: “liquidity provider of last resort.” It is the same thing in practice as when people refer to the “unlimited printing press.” The difference is ‘liquidity provider’ presumes a state of responsibility, whereas ‘unlimited printing presses’ presumes a state of privilege.
It is obvious this privilege/responsibility — the ability to print money with no objective restraint; the global role as financier of last resort — has helped create quite a situation here at home: massive amounts of concentrated wealth, on one hand, and huge debt for the country, on the other hand. Now, throw in a sharp post-2008 downturn in employment exacerbating what was already a poor labor market, and you’ve got inequality at a level at which even Americans begin to complain. Indeed, the public relations of inequality are that inequality is about more than public relations: it is a reality, and no longer the dismissable imaginings of a few socialists or naive students.
What can the government do to remedy the problems of debt and inequality? A lot. What the financial crisis and the response showed is that certain government institutions have incredible power to achieve economic objectives, if the objectives add up to the protection of wealth. The US is not currently a publicly-governed society in the sense that its leaders are not firstly motivated by solving public problems. Instead, focus is given its wealthiest clients. For example, what the government did in response to the financial crisis was slash interest rates; capitalize the banks; and take the market’s toxic assets onto its own balance sheet. What it did not do was attempt to solve the downturn in housing values; stop the corporate shedding of jobs; or significantly invest in the safety net. (Obama’s healthcare plan is a possible exception in that it attempts to solve a public problem, though at the time I write this the future of the Affordable Care Act is up in the there.)
During this era of money (since, roughly, August 1971) we have seen in the US a drop in pragmatic, solutions-based, public-oriented political governance. The politicians are professional fundraisers, the Constitution is politically interpreted, checks and balances increasingly blurred, and we have as a result a politics generally driven by social commentary, the news cycle, and the ability to resonate, rather than by political process or governmental skill. The ability to recognize skill, to be objective, to expect objectivity, seems at best anachronistic.
This is all to say that society hasn’t dealt perfectly with the financial privilege that history gave it. We’ve used it mainly to finance global movement of capital, wars, and billionaires, while shunning domestic improvements. At best, we made de-stabilizing choices. And public relations between main street and wall street, and government and citizen, are now a major problem.
With little capacity to fix any of this, what will happen?
What I anticipate is (1) American society will continue to develop an economic critique of itself; (2) the financial and economic elite will continue to see its interests in the development of consumers in societies like China, India, and Brazil, not in the US; and (3) domestic political conflicts will continue to intensify as these two facts collide. Elites will see their interests in neither higher tax revenues nor broad domestic investment in middle-class institutions. We ought to have taken note: in 2011, US default on some of its debt, and the negative consequences such a default would most likely have for the domestic economy, were put on the table. China, for its part, took note: their treasury purchases dropped in August of last year.* Let me repeat this. Default: on the table. Tax increases: entirely off.
In sum, I see a further decoupling of interests between a global elite and a domestically anchored population: the former enjoys the privilege of global monetary dominance, while the latter is saddled with the responsibility of austerity and the imperative of creditworthiness.