A Little Reality Breaks Through

It is nice to see that Federal Reserve Chairman “Gentle Ben” Bernanke realizes that an “economic slowdown” is in progress and wants to do something about it.

CNN Money reports: Bernanke: Juice the economy ‘quickly’

NEW YORK (CNNMoney.com) — Federal Reserve Chairman Ben Bernanke told Congress Thursday that legislators should enact a fiscal stimulus package in order to help beleaguered consumers as recession fears grow.

The comments by Bernanke, who testified before the House Budget Committee, came as a cascade of more bad news about the housing, financial and manufacturing sectors stoked calls for decisive action.

“To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so,” Bernanke said.
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The Fed chairman said that extending some of the tax cuts engineered by Bush in 2001 and 2003, which are set to expire in 2010, could have a positive impact on the stock market today. He singled out the cut on dividend taxes as particularly key to stimulating the economy.

Of course, he included gratuitous support for tax cuts that haven’t done a thing for the stock market since they were enacted, but he at least didn’t call for them to be made permanent, as he should realize that deficit reduction was a prime mover of the market in the 1990s. Once the markets saw that the deficit was actually going to be reduced, it took off. Among their other effects, deficits soak up investment capital on a long term basis and make that capital unavailable to the market.