I read the op-ed in the Wall Street Journal about the "Magnitude of the Mess we are in". The question that came to mind was "how many more years can the Fed keep buying treasury debt?" Forever? Highly doubtful. 1 year? Probably too short. So what's the number?

Consider this paragraph:

"Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II. "

So, this means $325 billion (25% of 1.3 trillion in the last fiscal year) was bought by foreign governments. This may be about the extent of the deficit we can finance without essentially printing book entries in an accounting system.

This is the big question I have for Mr Bernanke: how many years can we follow this strategy of quantitative easing, and even more important, how many years can the Fed keep buying newly issued federal debt? I think it will be sooner than "the long run" and probably sooner than the 10 year horizon that is in federal budgets.

http://online.wsj.com/article/SB10001424052702303561504577497442109193610.html?mod=WSJ_hp_mostpop_read

There are multiple effects of very low interest rates. Seniors and savers who didn't take big risks but who have just invested in bonds can't reinvest the proceeds at nearly the rates they planned on and budgeted for. The low rates drive pension funds that are supposed to get 8 percent returns per year into more speculative investments or means the pension plans are further underfunded (so then govt funds go to shore them up, not to provide services and infrastructure). Example of speculative investments: the farmland price escalations that are unprecedented:

http://www.iowafarmertoday.com/news/crop/rising-farmland-values-have-some-worried-about-bubble/article_0033bc52-a5d5-11e1-bc30-001a4bcf887a.html

Mr Bernanke's policies make me very nervous. I am not sure his approach of "someone needs to do something and it might as well be me" is really going to build a foundation for recovery.

Stuart: No serious person could be unconcerned by the facts as presented. I'd not characterize Bernanke's outlook as being "someone needs to do something and it might as well be me" but rather as "My God, White House and Congress are not acting responsibly and in 2013 we could be back in recession or worse! I've got to do what I can to buy some time for people who live in the real economy."

Buying the mortgage backed securities is a step too far. Doing this bails out the worst of the 2008 actors. These are people who were stupid to get into them in the first place and doubly stupid to not have figured out how to get out of them by now. They are, by definition, herd followers and dumb money.

Almost every cent of that $40B per month will head straight to whatever investment tool is currently "hot" on Wall Street. Right now, that is commodities. Gas, key metals, and food prices will spike. This will directly provide negative feedback into the economy.

Want to know why we haven't seen recovery? $4/gallon gas. We saw gas slow the initial recovery in 2010 and 2011. We're seeing it again in 2012. Unless and until the CFTC does what Congress already commanded it and remove speculators from key commodities -- but ESPECIALLY gasoline -- the economy will not recover.

I've been a fan of what the Fed has done. I understand the risks over the long term both economically and morally. But I prefer those future risks to the certainty of where we would have been absent these policies -- a Greater Depression that would have made The Grapes of Wrath look like a picnic in the park.

President Obama should issue an executive order withdrawing the 16 letters allowing Wall Street banks to speculate in the oil and gasoline markets. Since the letters were issued under executive powers by the Clinton and Bush administrations, and since Congress already directed the CFTC to address this, he should be well within his powers to do this. Eliminate the speculators and related ETFs, winding down those position over the next 12-18 months.

The St. Louis Fed estimated last year that 15% of the price of gasoline at the pump was due to speculation. My local station is charging $4.15, so that means I'm paying $0.62/gallon for Wall Street to trade a commodity they were never able to trade previous to the Clinton Administration. I believe this number is significantly higher now.

In 2004, the average US household spent $200/month on gasoline. Now they spend $384/month. If we assume the St. Louis Fed's number is accurate, eliminating the speculation on just gasoline would restore $6.6 billion in buying power to US households instantly.

For anyone wanting more information on this matter, I **strongly** recommend reading Matt Taibbi's book Griftopia. Chapter 4 will tell you all you need to know about this issue.

I hope TVD is right and that the Federal Reserve is doing the least damage possible. Mr. Bernanke is brave and, compared to the President and Congress, he looks and sounds intelligent. But the time to award him medals is far in the future. Go back and read what people were saying about Greenspan in 2004, he looked smart too. I don't think anyone was praising Paul Volker in 1982 except maybe for a few bond traders. The way I read Sandy Lewis's profile (thank you) I doubt very much if he would agree with what Bernanke is doing. Maybe I am missing something.

Wow, there's no mention of the one man most responsible for the housing bubble, the man who used the threat of government power to compel lenders to write mortgages for countless people who were eminently unqualified for them: Barney Frank. He didn't cause it all on his own, of course, but he deserves a lofty place of great dishonor in the rogues' gallery.

As usual, where to start in pointing out the errors, misleading statements, and wrong-headed political analysis in TVD's column. It's unfortunate but hardly surprising that he digressed from his decent piece looking at the important role of Ben Bernanke to taking poorly informed shots at President Obama's economic stimulus plan and health reform law.
Mainstream economists, including fairly conservative ones, broadly say that the stimulus plan saved millions of jobs and kept us out of a depression, even if it wasn't large enough and even if too much of it was devoted to tax cuts rather than direct government spending on infrastructure and putting people to work. That's a strong consensus in the economics profession. There's also a strong consensus among economists that Obama's auto industry bailout saved the industry and LOTs of jobs.
History shows there's never a "good" political time for health care reform. It's been shot down by right-wing opposition in both good and bad economic times throughout the 20th century. But as Obama and many economists and health care experts argued, fixing the U.S. health care system is central to fixing the U.S. economy, getting everyone into a cost-controlled system. They are not two separate and unrelated things.
TVD's suggestion that political gridlock began after the Republicans gained control of the House in 2010 is mind-boggling. Was he paying no attention for the first two years of Obama's presidency? From the stimulus plan to immigration to climate change to national security, on and on, the Republicans in Congress tried to block him from day one. Again, TVD discredits himself as a political analyst in his refusal to acknowledge the total GOP obstructionism.
And once again, TVD refuses to acknowledge that the $716 billion in reduced Medicare spending under the Affordable Care Act was hardly an "arbitrary" move. It included changes recommended by independent experts, notably reduced payments for overpaid private Medicare Advantage plans and reduced payments to hospitals for preventable readmissions.
I know it's useless, trying to get TVD to acknowledge any of this.

Thanks for the comments.

1. Actually, I was generous in the piece toward President Obama's
financial/economic recovery efforts and will continue, overall, to give him benefit of the doubt re the actions he took in an extraordinary situation. As my piece should have made clear, I do not
view either Presidents Obama or GW Bush as principal causes of what happened. They were the ones struck by lightning when long-building
storms finally broke.

The stimulus package not only had a lot of congressionally-mandated pork in it but it also reflected then-chief of staff Emmanuel's statement that a crisis was too good a thing to waste---i.e., that it provided a way to push many items through the pipeline, as stimulus, which had little to do with stimulus. Some of those things, including education initiatives, were OK on their own but not related to stimulus. Then there were the infamous contracts to Solyndra and others in the alternative-energy sector which could not have been regarded as job-creating except in the very long term---if they worked out. The purpose of the stimulus was to give the economy a badly needed, immediate jolt. Period. The congressional and public reaction to the stimulus package was such that it became impossible to do another version of it later, when recovery proved slower than hoped. There are many criticisms which could be made of the auto and housing-recovery efforts but the policy calls, in my judgment, were not that apparent at the time and Obama wanted to err, if he erred, on the side of action.

2. Partisan loyalty to Obamacare should not blind one to the degree to which it overwhelmed everything else on the public agenda, once it had been introduced and began to be examined and debated. I will not deal with the substantive problems with the legislation nor the tactical mistake of framing and pushing it through on a one-party basis. It just plain overshadowed everything else and, in 2010, became a political burden in particular for congressional Democrats seeking reelection. The loss of the 63 Democratic House seats--mainly by moderate Democrats to hard-line Tea Partiers---dramatically changed
the political balance in national policymaking and assured the gridlock we have experienced for the past two years. The President argued, on the legislation's introduction, that it had to be pushed
through in the early first-months "honeymoon period"---FDR's early New Deal initiatives were cited as precedent. But the fact was that the early FDR efforts were all related to immediate financial/eonomic recovery. His landmark first-term achievement otherwise, Social Security, did not come until the third year of his presidency.

What happened, I fear, is that Obama and his senior advisors simply did not recognize the depth or reach of the financial/economic problems they faced on taking office. Obama recently has acknowledged this although, as I noted, not conceding he erred in timing of the health legislation. He found himself, after the crash, in approximately the same position that GW Bush found himself after 9/11/2001---being forced to cope with a situation and events entirely different from those which he'd foreseen when he'd run for the office.
Knowing what he does now, I suspect Obama would have had somewhat different priorities and policy presecriptions than he did then, when thrown unexpectedly into the ocean.

3. Barney Frank was one of many, in a very large crowd, who can be
blamed for a role in the housing bubble. But, it should be remembered,
policymakers in both politcal parties had been questioning for 30 years why Fannie Mae/Freddie Mac should have their special, quasi-public status. They had been set up, originally, when it was thought that broad home ownership could not be achieved through wholly private
mortgage markets. But, over time, they began to swallow the earth.
I, personally, began to question the need for their existence in the 1980s, wrote about it, and discussed same with relevant Democratic congressional leaders. But, as with most things, it took a crisis to focus real attention on them.

The mention of Barney Frank, by the way, should bring attention to the fact that Dodd-Frank, enacted to help forestall further financial meltdowns, fell short in particular on the central "too big to fail"
issue. It has created a situation in which the biggest financial institutions now have an effective federal guarantee of a bailout if and when a fresh crisis should materialize.

Both Barney Frank and Chris Dodd will henceforth be back in the private sector---Dodd in a lucrative job as the movie industry's lobbyist and spokesman. I knew them both for many years as
among the shrewdest and savviest of their colleagues. Sometimes mistaken but always devoted to what they saw as the public interest.
Not corrupt or self servers.

TVD, I'll skip over your many wrong-headed statements about the stimulus package and instead urge you to please tell us, for the first time, what you see as the "substantive problems" with the Affordable Care Act. All you've ever railed about is the political process and the timing but you have never delved into the substantive policy details. Frankly, I've seen no evidence that you are familiar with the details of the law or that you truly understand health policy, given the many eyebrow-raising statements you make, such as that the Affordable Care Act's Medicare spending curbs were "arbitrary." Please for once spare us the polls and your perception of public opinion and tell us what's wrong with the law and how you would improve it. And please don't tell us it would have been improved with Republican cooperation, because the Republicans absolutely refused to participate (ask Sen. Baucus) and because it was built on a traditional Republican framework.

No mention of Brooksley Born or Elizabeth Warren? They were warning of the impending financial disaster as far back as 1999. Maybe prevention would have been a better course.

Harris Meyer makes the following gross misstatements, then accuses Mr Van Dyk of errors and misleading statements:

"Mainstream economists, including fairly conservative ones, broadly say that the stimulus plan saved millions of jobs and kept us out of a depression, even if it wasn't large enough and even if too much of it was devoted to tax cuts rather than direct government spending on infrastructure and putting people to work. That's a strong consensus in the economics profession. There's also a strong consensus among economists that Obama's auto industry bailout saved the industry and LOTs of jobs."

There is absolutely no consensus among economists that the stimulus plan helped the economy. Plenty of "mainstream economists" have written extensively that the stimulus plan was a waste of money with little positive effect. See John Taylor, Gary Becker, Ed Lazear, etc.

Obama's auto bailout accomplished three things: (1) by strong-arming the bond holders to subordinate their claims to those of the union pension funds, he harmed the rule of law in the United States, while (2) rewarding those who contributed to his campaigns. (3) The U.S. investment crowded out private capital investments in GM and Chrysler, which were certainly available in a properly structured Chapter 11 without government interference. Candidate Romney's approach would have resulted in the same number of jobs at GM, Chrysler and their suppliers, while upholding the rule of law and transferring private investment risk from the taxpayer to willing private investors.

PJS, the director of the Congressional Budget Office agrees with me and disagrees with you about the stimulus plan and the consensus among economists.
http://www.washingtonpost.com/business/economy/congressional-budget-office-defends-stimulus/2012/06/06/gJQAnFnjJV_story.html
And here's the free-market Economist magazine editorialists blasting Romney's position on the auto bailout, though they agreed with him at the time.
http://www.economist.com/blogs/democracyinamerica/2012/02/mitt-romney-and-car-industry

It is really fascinating to look at the original sources. First, the Washington Post article mentions the that the CBO head cited a University of Chicago study. It links to that study, so I clicked through. They have a very interesting way of doing surveys. They have a panel of 41 economists (at least that is how many they asked question A). These economists are all from 7 universities: Yale, Princeton, Chicago, Stanford, Harvard, Berkeley, and MIT.

In contrast to most surveys, in this one the respondents are cited by name, and can give comments that are visible to all. Also, one can weight the vote by confidence.

Now, there are a number of oddities about this "survey": it certainly is not randomly selected economists, has economists only from certain institutions, and one wonders who selected these people? I don't know economists well enough to know if these particular ones have pre-existing biases, but there are a number of schools with very fine economics departments, as indicated by winners of recent Noble Prizes, that are not included at all in this survey. I looked at this page for example,

http://en.wikipedia.org/wiki/List_of_Nobel_laureates_in_Economics

it shows who has won the Nobel prize in economics. During just the past 10 years, US winners have been drawn from the faculties of NYU, Northwestern, Minnesota, Maryland, Stony Brook (joint with Hebrew University in Jerusalem), Carnegie Mellon and George Mason.

My point is: there are many different sources one can cite. There are many different ways to label a "source." If one reads the Washington Post article, one gets the impression that Mr Elmendorf was citing a statistically valid group. I don't think that's the case.

Also, there's something else really odd about the Booth study. If you add up the percentages (29, 51, 2, 2, 2,) you don't get 100 percent. Hmm.

I would be very cautious about citing this as a source.

However, what is really interesting is the other question the survey asked: will the benefits of stimulus exceed the costs? The answers are all over the place, 46 % (unweighted) say yes, the rest say uncertain or no, or don't answer.

Now, here's one more oddity. Mr Elmendorf cites the Booth study. One of the participants in the study says "See the various CBO studies on the subject. " Isn't this circular reasoning? If someone did this in Mr Nordhaus's class at Yale, they would probably flunk.

Or here's another example of circular reasoning. One of the Booth participants says "quit with the politics and just go read the official ARRA reports for a review of the evidence". And who is this participant on the panel? Why none other than Mr Obama's former economics advisor Austin Goolsbee!

This reinforces the point earlier: this is no random survey group.

sjenner's points are excellent.

Of course I'd expect the liberal Washington Post and a government employee (head of CBO) to extoll the economic benefits of government spending.

As to the Economist article, it makes the statement "it is more likely that GM would have been liquidated." That's just plain wrong. Under no circumstances would GM have liquidated. The private capital was there, waiting for Chapter 11 to sort out the liabilities. Instead, Pres Obama decided to reward the UAW for its campaign donations.

Now to critique the Economist post:

http://www.economist.com/blogs/democracyinamerica/2012/02/mitt-romney-and-car-industry

Read the fine print of who is writing this - it is not the editorial page. Instead, "In this blog, our correspondents share their thoughts and opinions on America's kinetic brand of politics and the policy it produces." So, this is written by some correspondent with the initials "R M".

This particular blog has a wide variety of opinions from US writers for the Economist. As far as I can tell they are not the same people who write the editorials for the print edition.

By the way, here's an interesting data point about the success of the stimulus: 7 of the 10 richest counties in the US, as measured by per capita income, are in the Washington DC area.

http://www.washingtonpost.com/wp-srv/special/local/highest-income-counties/

Doesn't it seem odd that places like Silicon Valley are so far down the list (19th and 33rd), and that places most noted for the public sector are so high?

TVD writes:

"Trouble was, Obama mainly delegated the formulation of the stimulus package to Democratic congressional committee chairs, who used much of it to pay for non-stimulating pork-barrel stuff which created neither jobs nor economic growth."

This is a statement that is circulating wildly in the conservative blogosphere.

TVD is obligated to support this statement that he makes with such certainty with some degree of analysis (and for goodness sake not Heritage, CATO, AEI or other partisan think-tank). Or is TVD just undisciplined to repeat an "accepted truth"?

Pythagoras: "Circulating wildly in the conservative blogosphere?" ???

I do not know what may or may be not be circulating wildly in the blogosphere or from CATO, AEI, etc. I don't use them as sources.
I only know what I and others observed at the time. I wrote about it extensively. So did many others. Surprised you missed it
back then.

When Obama took office he relied greatly for design of his legislative initiatives on leading Democrats in the House, in particular. His chief of staff, Rahm Emmnuel, had been a member of the House and knew leaders well there. Some parts of the stimulus package, including the
altarnative-energy proposals, had Executive as well as legislative origins. A front-page Washington Post story last week spelled out, once again, how several education initiatives got folded into the stimulus package although they were unrelated to stimulus.

The same was true of early drafting of the health-care plan. This
was done, in part, because Emmanuel had been in the Clinton White House when the Clinton health-care plan was drafted by an internal task force in which the Congress was not involved---thought at the time to have been part of the reason it failed to draw sufficient congressional Democratic support and had to be withdrawn in 1994.

The method by which the early Obama initiatives were framed was
well known and rcognized at the time by people of all political persuasions. It does not matter, of course, whether they were drafted principally in the White House, Congress, or otherwise. The only thing that matters, substantively and politically, was their eventual content. Their origin properly would be seen by most voters
as an irrelevant side issue. Can't imagine why one would think otherwise.

Ted -

One of the reasons why the Congress has about a 9% approval rating is that the origin of much legislation, is, or is perceived to be, from well-monied, well-oiled lobbying machines, not from our duly elected officials. I can't speak for eveyone, but I certainly don't agree with your statement, "Their origin properly would be seen by most voters as an irrelevant side issue."

If a piece of legislation comes from the banking industry, or the NRA, or ALEC, etc, it's HUGELY relevant for obvious reasons. These lobbies represent corporations, not people.

The source of legislation makes a HUGE difference. Can't imagine why one would think otherwise.

TVD: "It does not matter, of course, whether they were drafted principally in the White House, Congress, or otherwise. The only thing that matters, substantively and politically, was their eventual content. Their origin properly would be seen by most voters
as an irrelevant side issue."
Exactly, TVD. Then why have you repeatedly, including in this column, ranted about the process by which the stimulus package and the health care reform law were drafted?
BTW, TVD, I extensively covered the Clinton health reform battle of 1993-94 and have read a lot of the followup analysis, including the excellent David Broder-Haynes Johnson book about it (yes, David Broder, your bipartisan centrist idol). And I can tell you that there is a strong consensus that the failure of the Clinton plan was due in large part to the failure to sufficiently engage congressional Democratic support through failing to let congressional leaders take ownership of the legislation. President Obama, Rahm Emmanuel, and other Obama administration officials learned that lesson well. And guess what? They succeeded in passing a comprehensive health care reform law -- an achievement that had eluded presidents starting with FDR. They succeeded in passing a law, despite total political warfare against it by the Republicans! Does that suggest that maybe, just maybe, Obama and company did something right?