Here's Why Ben Bernanke Can't Save The Economy This Time

Provided by Business Insider, July 8, 2010:

Today's blip down in the jobless claims notwithstanding, there's no doubt that the prospects of a double-dip recession seem to be growing with each major economic announcement.

Naturally this has to be causing consternation within The White House and at The Federal Reserve. In fact, The Washington Post reports today that the Fed is weighing various measures to save the economy if it falters.

That could involve further asset purchases.

But if you think it's just a matter of engaging in quantitative easing a la March 2009 you're being naive. Rates are near record lows, and it's not helping anymore. Pumping cash into the banking system won't help because banks aren't lending. Companies aren't spending their cash hordes, so even if banks were lending, there's no reason to think there would be any demand.

Want to know why some are calling for the Fed to intervene directly in the equity markets? It's because the big guns have been fired already. At the margins there's probably some wiggle room for the Fed, but not massively so.

There is actually one asset that the Fed could buy to get money into the economy, and that's US Government debt, because then you know it would get spent in doing something (bridges, pounding gravel... Keynesian/New Deal stuff, basically). But that's something Bernanke can't make happen on his own.

With the US Congress likely headed towards austerity mode, due to popular demands and a likely solid showing for the GOP in November, the Fed's hands are tied.

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