Bernanke: “I was not giving financial advice”

Bernanke’s testimony to the House Finance Committee this morning is disturbing in so many ways. But only a few of the committee representatives are wise enough to ask the right questions. In an early part of the hearing Bernanke was asked what we should be saying to seniors who are struggling to make ends meet with 100 year lows in interest rates today. (Not just seniors, this is a problem for everyone–pensions, insurance companies, individuals–everyone who is needing to keep capital secure and earn some reasonable level of guaranteed income.) Bernanke had offered the insane, reckless response that we should take money out of guaranteed deposits and put it into the stock market to earn more yield.

Representative Scott Garrett, R-New Jersey highlighted the ludicrous nature of this comment to Bernanke in his 5 minute questioning time. Big Ben was quick to recant with “I was not giving financial advice, I apologize…”

It must be lovely to live in the hallowed halls of theory and make believe. In the real world, this is precisely the self-destructive behaviour that the Fed is encouraging, and precisely the advice that the investment industry is giving to its under-capitalized clients today.

Garrett also points out the nonsense of the Fed’s alleged “wealth effect” on spending via goosed stock prices and the hypocrisy of a Fed who simultaneously says they have done good work in keeping policy rates low because this has inflated the housing market over the past couple of years, but that their previous low rate policies did not play a role in over-inflating home prices between 2001 and 2006. Bernanke lives in a world of theory so he can pretend that its QE efforts are not putting real people and their savings in harm’s way. Must be comfortable to be so oblivious. Here is the clip worth watching. Good work Representative Garrett.

Representative Michelle Bachmann, R-Minnesota also asked some revealing questions on why the need for QE bond buying by the Fed if there are many other willing buyers in the market for US debt. Here is the clip.

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