Faith that the blitz won't come

I just read Bernanke's speech @ Jackson Hole.

Bernanke states that the economy has improved since the financial crisis, though not as much as the FOMC would like, and that the reason for the sub-standard recovery is primarily related to the housing market. The usual pent-up demand created during a recession is absent this time.

Bernanke does not expect the financial crisis to have altered the long-term prospects of the US economy, assuming that the legislative and executive branches of government are capable of taking the "necessary steps to secure that outcome".

In short, Bernanke focuses on the US long-term prospects: "[T]he growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals." He argues that to get there, "most of the economic policies that support robust economic growth in the long run are outside the province of the central bank." In other words, the FOMC has done what it can to foster short-term growth; long-term growth is up to Congress and the President.

The two most relevant paragraphs are here:

Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery. Fortunately, the two goals of achieving fiscal sustainability--which is the result of responsible policies set in place for the longer term--and avoiding the creation of fiscal headwinds for the current recovery are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.

Fiscal policymakers can also promote stronger economic performance through the design of tax policies and spending programs. To the fullest extent possible, our nation's tax and spending policies should increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. We cannot expect our economy to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face.

The Gimped image of "Bernanke as Chamberlain" reflects my overall feeling from the speech. Bernanke sees the US economy returning to full-strength thanks to non-specific action by the US Congress and White House. Chamberlain trusted Hitler to keep his word. Bernanke is trusting this Congress and President to solve our problems. Should he really be that surprised when the blitz comes?