Last Friday's speech by Federal Reserve Chairman Ben Bernanke contains one of those little inconsistencies that drives me nuts.  In his assessment of economy:

The prospect of high unemployment for a long period of time remains a central concern of policy. Not only does high unemployment, particularly long-term unemployment, impose heavy costs on the unemployed and their families and on society, but it also poses risks to the sustainability of the recovery itself through its effects on households' incomes and confidence.

Can the Fed rescue the economy by making money even cheaper than it already is? A debate is being played out in the Fed about whether it should return to so-called “quantitative easing” – buying more mortgage-backed securities, Treasury bills, and other bonds - in order to lower the cost of capital still further. 

The sad reality is cheaper money won’t work. Individuals aren’t borrowing because they’re still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they’re not in a position to borrow. Small businesses aren’t borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground.

The Jackson Hole conference starting today is expected to include a talk by Ben Bernanke on the benefits and costs of further monetary easing, which in ZIRP-land means quantitative easing. Gavyn Davies put up a good short list of arguments made against QE at the Financial Times, and most do not look terribly persuasive. One which I found interesting was:

“QE will weaken the Fed’s balance sheet, and undermine confidence in the institution.” This was a very powerful argument in Japan in the 1990s, which reduced the amount of quantitative easing which the BoJ was willing to undertake. If the Fed simply buys Treasuries, it is hard to see how this weakens the balance sheet, unless you believe that the US government could default on its debt. However, if the Fed were to buy private sector assets, like securitised debt and/or equities, then it could subsequently have to take mark-downs on these assets, and many people would see this as a problem. But the Fed probably should not be treated like a private bank, which would suffer a loss of solvency if it suffers a mark-down on its assets. The Fed does not have to mark-to-market like a private bank. And, anyway, does it ultimately matter if the Fed has a negative net worth? The answer would be yes if it undermines the public’s faith in the institution, causing people to reduce their holdings of dollars, in exchange for goods, or foreign currencies. But this is just another way of saying that there is an inflation constraint on the Fed’s ability to increase QE, which everyone would accept. So the balance sheet argument only holds as a special case of the inflation argument.

It appears that Simon beat me to commenting on Third World America, Arianna Huffington’s bleak portrait of many of the things that are wrong with America (crumbling infrastructure, failing schools, extreme inequality, low social mobility, political system captured by special interests, etc.), so I’ll confine myself to a couple of thoughts I had while reading it.*

First, there are these great quotations from Alexis de Tocqueville’s Democracy in America (p. 45 of Huffington’s book):

“Amongst the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people. . . .

“Democratic laws generally tend to promote the welfare of the greatest possible number; for they emanate from the majority of the citizens, who are subject to error, but who cannot have an interest opposed to their own advantage.”

Today's update on new filings for unemployment benefits brings a reprieve from last week's disturbing surge in new claims. For the moment, we can breathe a sigh of relief. But while the trend has improved, it's still not healthy.