The Ed Show | December 12, 2012
>>> show." thanks for watching tonight. over the past two years, federal reserve chairman ben bernanke has repeatedly asked congress to do something to help the economy. well, democrats and president obama have put a number of major bills, job bills on the table, but boehner and mcconnell and that crowd, they've just done nothing. it's a do-nothing congress, and they have fought it every step of the way. so now with the fiscal cliff looming, the federal reserve is taking matters into their own hands. bernanke announced today that the fed will take unprecedented steps to boost the economy. the fed is currently spending $40 billion a month on mortgage bonds, and now they're willing to take to it the next level by purchasing $45 billion worth of treasury bonds per month. the fed also grid to keep short-term interest rates near zero. they plan to keep interest rates low until the unemployment rate falls to 6.5%, or the inflation rate reaches 2.5%. this is the first time in the fed's history that they have ever made goals for the nation's economic recovery. for more let's turn to william cohen . he is a bloomberg columnist and
author of "money and power: how goldman sachs came to rule the world ." mr. cohen, good to have you with us tonight.
>> great to be here.
>> what do you make of this move? bernanke has been out there that congress has to move on something. they didn't. but now in the 11th hour, he makes this move. how big is it?
>> it's very big. it's creative. it's unprecedented. and i think it's by and large going to help the middle class , assuming you're somebody in the middle class who wants to refinance your mortgage or get a mortgage to buy a home in the first place, because what he is doing is lowering, trying to lower long-term interest rates . as he said, short-term interest rates he is going to keep at a quarter of a percentage point. he can't do much more with that. but long-term interest rates he can try to drive down by buying mortgage -backed securities, by buying treasury securities . in a sense, creating artificial demand in the market, which lowers the interest rates , increases the price of bonds. bonds trade inversely to their interest rates . so that will drive down interest rates , encouraging people to borrow more money.
>> so what is this going to do to the housing market ? we've seen a slow recovery come back? should this really be a shot in the arm?
>> it should help encourage that recovery along. what it does, it keeps mortgage rates lower than they ordinarily would be.
>> and for the long-term?
>> and for a longer period of time.
>> okay. they're setting goals for the unemployment rate and inflation rate . what does that tell us?
>> well, it tells us that he probably wants to keep this program in place for another year or two years. i think goldman sachs estimates that this will be in place until the first quarter of 2016 because that's how long it will take for the unemployment rate to reach 6.5%. now that's good news, again, if you're borrowing money. but if you're a saver, ed, that is not good news, because interest rates are going to come down, and you're not going get anything on your savings.
>> so what do you think prompted this? possibly more filibusters? more stagnant movement on job creation by either side of the aisle? or was it just these fiscal cliff negotiations that are going on right now? the inability to make a deal?
>> it's the do-nothing congress. their inability to make this deal. the best thing for the economy would be to make a deal and get off the fiscal edge, right. but if they're not going to be able to do that, then bernanke is smart. and again, it's unprecedented for him to do that. it's smart for him to go in and continue to try to stimulate the economy.
>> you know, it's one thing for him to say that he is very concerned about the fiscal cliff and what it would do to the economy. but then to back it up with this move.
>> yeah. you got to give the guy a lot of credit. it might be his bid for a third term as fed chairman, frankly, because it is creative. it's unprecedented, and by the way, the europeans are now following his lead.
>> what is the danger here?
>> well, the danger is that we're creating a bit of a bubble with these low interest rates , just like we did, unfortunately, in 2003 and 2004 when greenspan kept interest rates low. and that created the housing bubble , because investors were looking for higher yield. and when investors start looking for higher yielding bonds, then they take risks that they wouldn't ordinarily take. and that's the risk here that we're creating a bubble in interest rates . and of course, savers are not happy right now.
>> what about the credit markets ? is it going to be hard to get money in this economy because you've got to back it up with securities and what not, or is that going to change, that dynamic going to change at all?
>> this program has been in place for three or four years now, and credit has not been that easy to get. if you're a big corporation, they'll throw buckets of money at you.
>> but if you're trying to refinance your mortgage or get a mortgage in the first place, they've made it that much harder. and this isn't necessarily going to make it that easier. it's just if you get a mortgage , the rates will be lower. so people should be encouraged to try to refinance, should try to get that mortgage in the first place. but that doesn't mean they're going to get it.
>> they are worried about the economy, though, because they're not only talking about it, but making this move.
>> that's right.
>> william cohan , thank you so much for being with us tonight. thank you so much