–Fed Chairman’s Plea For ‘Better Process’ Seen As Clear Rebuke To Hill
–Republican Leaderse Brushed Aside Bernanke’s Debt Limit Warnings
–New Deficit Panel Will Be First Test of Call For ‘Difficult Choices’

By John Shaw

WASHINGTON (MNI) – Congress usually listens to economic advice from
Federal Reserve Board chairmen in roughly the same way children listen
to advice from their parents.


It is true that, on occasion, lawmakers do carefully review and
even study the testimony and speeches of Fed chairmen. During the
congressional testimony of both Alan Greenspan and Ben Bernanke some
lawmakers have clearly been interested in probing the views of the Fed
chiefs and seeking their candid assessment about the state of the
economy and various policy alternatives.

But more often, lawmakers have tended to seize on the ideas,
sentences, or even sentence fragments of Fed chairmen and used them as
corroborating evidence that bolster their long-held views.

Bernanke warned Congress repeatedly and even forcefully in the
first half of 2011 not to use debt ceiling legislation as the instrument
to battle over fiscal policy.

But Republican leaders brushed aside Bernanke’s pleas with almost
disdain, declining to even consider his main argument that using the
debt ceiling vote as leverage was at best risky and at worst highly

Consequently, it’s unclear how either party will respond this fall
to Bernanke’s recent Jackson Hole speech, especially as it pertains to
fiscal policy.

During his remarks last week, the Fed chairman said bluntly that as
it pertains to fiscal policy “the country would be well served by a
better process for making decisions.”

“The negotiations that took place over the summer disrupted
financial markets and probably the economy as well, and similar events
in the future, could, over time, seriously jeopardize the willingness of
investors around the world to hold U.S. financial assets or to make
direct investments in job-creating U.S. businesses,” he said.

As is his practice, Bernanke stayed clear of specific fiscal policy
recommendations, but urged lawmakers to “consider developing a more
effective process that sets clear and transparent budget goals, together
with budget mechanisms to establish the credibility of those goals.”

The Fed chairman added that even with clear budget goals and strong
enforcement mechanisms there is still a need for policymakers to “make
the difficult choices that are needed to put the country’s fiscal house
in order.”

Bernanke also emphasized that the imperatives of short-term
stimulus and long-term fiscal discipline “are not incompatible.”

Bill Frenzel, a former Republican congressman who is now a guest
scholar at the Brookings Institution, said he believes the Fed chairman
had a clear audience for last week’s fiscal remarks.

“My reading is that Bernanke’s Jackson Hole speech was largely
directed at Congress. He said in effect that the Fed has done all that
it can reasonably do to gin up the economy and now it’s up to Congress
to develop some rational fiscal policies,” he said.

“Bernanke made it clear that Congress needs to start acting like
adults in setting economic policy–both to promote growth and cut
deficits,” he added.

Bob Bixby, the executive director of the Concord Coalition, said he
believes Bernanke’s comments were striking only because they came from
the chairman of the Fed.

“Very little of what Bernanke said is surprising or even arguable.
He was basically joining an ever growing chorus of voices urging
Congress to develop better fiscal policies. But coming from the chairman
of the Fed and expressed in a pretty blunt way, his comments got a lot
of attention,” Bixby said.

“But it’s hard to tell if it will have any effect on Congress.
Congress seems to operate in its own special universe and is often
impervious to the warnings or even the logic of outsiders. It’s unclear
if the growing chorus of criticism will get its attention,” he added.

Budget experts agree that the first test of the staying power of
Bernanke’s fiscal pleas will be the work of the so-called Super
Committee created by this summer’s debt ceiling law.

The Joint Select Committee on Deficit Reduction is charged to
submit a report to Congress by Nov. 23, 2011 that reduces the deficit by
$1.5 trillion between 2012 and 2021.

The final package, if one is agreed to by the majority of the
panel’s 12 members, must be voted on without amendment by the House and
Senate by Dec. 23, 2011.

If the panel, which is comprised of six Republicans and six
Democrats, fails to agree on a spending cut package, a budget
enforcement trigger would secure $1.2 trillion in budget savings through
across-the-board cuts.

The cuts would be equally divided between defense and non-defense
programs but would exempt Social Security, Medicaid and low-income

Bixby and Frenzel agree that the work of the Super Committee will
be largely driven by congressional leaders.

“If the congressional leadership wants an agreement there will be
one in this committee. If they don’t, there won’t be one. That is the
bottom line,” says Bixby.

“Perhaps the warnings of Bernanke will be part of the calculus of
the congressional leaders. We don’t know yet,” he added.

Frenzel agreed that the work of the Super Committee will be shaped
by congressional leaders. “No one was put on this committee to find
creative ways to cut a deal with the other party. They were put on this
committee to represent their leaders,” Frenzel said

House Speaker John Boehner named Republican congressmen Dave Camp,
Fred Upton and Jeb Hensarling to the new panel.

Camp is the chairman of the House Ways and Means Committee. Upton
chairs the House Energy and Commerce Committee which has partial
jurisdiction over Medicaid and Medicare. Hensarling sits on the House
Budget Committee and is the House GOP’s conference chairman. Boehner
named Hensarling the new panel’s vice chairman.

House Minority Leader Nancy Pelosi selected Democratic congressmen
Chris Van Hollen, Jim Clyburn and Xavier Becerra to sit on the newly
established “super committee” created by the recent debt ceiling law to
cut future budget deficits.

Van Hollen is the ranking Democrat on the House Budget Committee.
Clyburn is the third ranking House Democrat and was a participant in the
budget talks this summer led by Vice President Biden. Becerra is the
vice chairman of the House Democratic caucus and is also a member of the
House Budget and Ways & Means Committees.

Senate Majority Leader Harry Reid named Democratic senators Max
Baucus, John Kerry and Patty Murray to be his representatives on the
newly established panel. Reid named Murray to co-chair the 12 member

Baucus is chairman of the Senate Finance Committee and also was a
member of the budget talks led by Biden. He was also a member of the
Simpson-Bowles commission. Kerry is the chairman of the Senate Foreign
Relations Committee, is a member of the Finance Committee, but has never
been considered a fiscal expert.

Murray is the second ranking Democrat on the Senate Appropriations
and Budget committees and is a member of Reid’s leadership team. She
also heads up the Senate Democratic Campaign Committee.

Senate Minority Leader Mitch McConnell named Republican senators
Jon Kyl, Pat Toomey and Rob Portman to sit on the panel.

Kyl is the Senate Minority Whip and participated in the talks with
Biden. Portman and Toomey are first term GOP senators. Portman served as
White House budget director for President George W. Bush.

** Market News International Washington Bureau: (202) 371-2121 **

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