Thursday, March 10, 2016

Ben Bernanke Offers His Advice To China

Bernanke learned a lot about monetary policy during his tenure at the helm of the Federal Reserve.  He describes the monetary policy issues that China faces and he advocates a fiscal policy solution as it manages its growth and transition to a larger economy.  Fiscal policy can be used to manage the transition without causing its currency to lose value and also prevent currency outflows.  He does not advocate infrastructure investment as the fiscal policy tool.  He argues that an expansion of social welfare programs would provide needed security to its citizens and decrease the necessity to over save.  That would increase spending and domestic demand.

Bernanke was hampered by the failure of US politicians to deal with the problem of deficient demand with greater use of fiscal policy.  That increased pressure on the Fed to pursue monetary approaches that were insufficient during a deep and enduring decline in demand.  US fiscal policy deficiency attenuated the impact of monetary stimulus on the US economy. 

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