ABSTRACT
In July 2012, Federal Reserve Chairman Ben Bernanke made his semi-annual appearance before Congress, as required by law. Bernanke had assumed this position in 2006, on the eve of what would become the most significant financial crisis since the Great Depression. Although the Federal Reserve has jurisdiction over commercial banks, Bernanke had extended its reach to prevent the collapse of some of the nation’s largest investment banks, drawing authority from a depression-era provision (Section 13.3 of the Federal Reserve Act) that permitted such actions under “unusual and exigent circumstances.” Subsequently, he used the Federal Reserve to flood the market with liquidity in hopes of stimulating recovery. But despite these efforts, there were concerns over the slowing pace of economic growth and job creation. Projections of future growth had been downgraded by the Federal Reserve’s staff, and there was “a higher degree of uncertainty about their forecasts than normal… the risks to economic growth have increased.” These risks, posed by a fiscal and banking crisis in the Eurozone and U.S. fiscal policy, could have significant implications. Bernanke testified: “The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery.” 1 Although Bernanke was the nation’s most powerful economic policymaker, his ability to achieve stable growth was contingent on factors that were simply beyond his control.
