American Thinker ^ | July 6, 2012 | Col. Frank Ryan, CPA, USMCR (Ret.)
In Chairman Bernanake's doctoral thesis, he "focused on the role of monetary policy in affecting economic activity, and on the historical analysis of the causes of the Great Depression." His thesis and resulting understanding of the negative impact that uncertainty has on business cycles should provide insight on the actions needed by government to resolve our current economic difficulties. In short, Dr. Bernanake understood that "[i]t is shown that increased uncertainty provides an incentive to defer such investments in order to wait for new information" (page 2 of the dissertation). In the same paper, he wrote, "Uncertainty is seen to retard investment independently of considerations of risk or expected return. Introduction of uncertainty can be associated with slack investment, resolution of uncertainty with an investment boom."
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The Federal Reserve can change all of that, and very quickly. The Federal Reserve is enabling this administration to be fiscally irresponsible with its unrealistically low interest rates. Be it Quantitative Easing 1, Quantitative Easing 2, or Operation Twist and its successor, the implications of a loose monetary policy enables our federal government not to solve the problem.
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Should the Federal Reserve not exercise its leadership responsibility, the last vestige of hope will be when Congress faces raising the debt ceiling, but by then it may be too late. The time to act is now. The Federal Reserve must remove all uncertainty by showing our citizens and the world that we are serious about instilling fiscally responsible behavior. The Federal Reserve must stop this loose monetary policy philosophy. It's the uncertainty, stupid! Solve the problem!
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