Ben Bernanke answered questions from the Senate Banking Committee today. A few items really stuck out. The first is how obvious it should be to everyone, even the politicians, that economic problems in the U.S. cannot be solved by tweaking monetary policy. They can only be addressed by fiscal policy. The second was how hard some of the committee members tried to change the subject. Instead of focusing on important economic problems here in the U.S. and how to solve them, members with their heads stuck in the sand chose to attack banks for manipulating LIBOR. They wanted to know what the Fed was doing about this; as if it could do anything.
Economic problems in the U.S. have nothing to do with interest rates being too high. They have everything to do with the so-called fiscal cliff, something only Congress can fix. Perhaps the most enlightening moment was provided by Senator Charles Schumer of New York. Addressing Chairman Bernanke as if he were a bad schoolboy who had not done his homework, Schumer first forced Bernanke to admit that the Fed was not out of tools then he told Bernanke to go back and do his job. Why? Because Congress refuses to do its fiscal job.