Bernanke on the brink

What impresses is this: the massive stimulus programs and the meek recovery. How much worse things might have been without stimulus is an open question. Economists argue ferociously, and the numbers vary widely. For example, the CBO estimates that Obama’s initial stimulus has created between 200,000 and 1.2 million jobs in 2012. But whatever the benefits, massive stimulus clearly hasn’t triggered a monster recovery.

Explanations abound. One is that the stimulus programs were still too timid. If we’d done more, we’d be in better shape. Another theory is that the trauma of the financial crisis and recession made households and businesses deeply cautious; they postponed spending, paid down debt and hoarded cash. Magnifying their anxieties were persisting threats: Europe’s financial turmoil; the stubborn housing bust; the uncertainty of public policy (Obamacare’s impact, the debt ceiling fight, and now the “fiscal cliff”)…

There is a desperate air to Bernanke’s latest move. At best, it will reinforce a long-awaited housing revival. At worst, it will founder on obvious problems. How much lower can the Fed drive long-term interest rates? How much money can the Fed shovel into the economy without rekindling inflationary expectations and behavior? The Fed is on the brink of moving beyond what it understands and can control.