Domesticus: Mr. Bernanke, first of all, we recognize that you’ve got one tough job. Last year, we even wrote you a sincere note to tell you so, and offered our sympathies. To which one of your staff people actually responded with a thank-you note. We understand that trying to manage the economy–well, not manage it, but, you know, trying to keep the weather not too hot and not too cold while somebody’s always screaming about heatstroke and somebody else is dying of frostbite, is really an impossible task to get right. In fact, some people would say that since it’s such it’s an impossible task, your job shouldn’t even exist. We don’t know about that, but we know we wouldn’t want to do it.
So we have a lot of sympathy for you, trying as you are to do the impossible. But we also have some questions. Because frankly, we’re concerned about the deficit, the big gap between what the government owes people–especially older people who, even if they can’t retire are liable to get sick some day–and what the government can afford to pay them. Can you summarize for us what the Fed is doing about this problem?
Bernanke: Sure. First we had QE1, where we bought up all those bad mortgages that never should have been made in the first place.
Domesticus: When you say we—
Bernanke: I mean us taxpayers. You, me, your Aunt Hilda, your neighbor down the street who paid $500k for that piece of swampland, we’re all in this together. So we bought up the bad mortgages that were weighing down poor Fannie and Freddie and also gave them $100 billion in pocket change so they could put dinner on the table. And then we cut interest rates to zero so that we would all feel cozy and start spending again.
Domesticus: And what was the result?
Bernanke: Mortgage rates went way-way-way down.
Domesticus: And people and businesses started spending again?
Bernanke: No, they were too scared.
Domesticus: So then what did you do?
Bernanke: QE2. We bought long-term Treasury bonds. Lots of them, $600 billion worth.
Domesticus: And what did that do?
Bernanke: Created a stock market boom. Saved us from depression! Created jobs.
Domesticus: How many jobs were created?
Bernanke: Some 700,000.
Domesticus: Let’s see…$600 billion spent, 700,000 jobs…that means we spent $850,000 to create each job. And unemployment was still over 9 percent.
Bernanke: But mortgage rates went way-way-way down.
Domesticus: Tell me what you did next.
Bernanke: Operation Twist! We sold short-term Treasury bonds and used the money to buy long-term Treasury bonds.
Domesticus: What for?
Bernanke: To get interest rates down so people and businesses would feel comfortable spending again.
Domesticus: Did it work?
Bernanke: There was a big meltdown in Europe and people here were afraid of catching it, so they didn’t go out and spend money and create jobs like they were supposed to do. But mortgage rates did go way-way-way—
Domesticus: Mr. Bernanke, you’re scaring me. You’re making it sound like the Fed only knows how to do one thing, and we have these giant, mounting debts that we can never repay staring us in the face. What if someone is falling asleep at their desk and needs to retire? What if someone gets sick? What if someone gets mad and throws a brick through the window at Citibank? What are we going to do, Mr. Bernanke?!
Bernanke: Chill, baby! There’s nothing to fear but fear itself. Here, I’ll show you. [Pushes up from his chair and strides across the room to a black box sitting in the corner. Opens it and sorts through it.] Ah, here it is! [Pulls out a cd and pops it into his computer.]
Bernanke [singing along and dancing]:
Come on, let’s twist again
Like we did last summer
Yeah, let’s twist again
Like we did last year!
Do you remember when
Things were really hummin’?
Yeah, let’s twist again
Twistin’ time is here!