With the publishing of a “white paper” about the housing market, Fed Chairman Ben Bernanke (photo) has rankled some Republicans that suggestions made appear to have transgressed some line of propriety that separates monetary policy, fiscal policy, and the Fed’s “independence.”
The study, prepared by his staff and signed by the chairman, decried the inability of the housing market to get back on its feet despite continued efforts by both Congress and the Fed to restart it. Bernanke wrote:
The challenge for policymakers is to find ways to help reconcile the existing size and mix of the housing stock and the current environment for housing finance. Fundamentally, such measures involve adapting the existing housing stock to the prevailing tight mortgage lending conditions — for example, devising policies that could help facilitate the conversion of foreclosed properties to rental properties — or supporting a housing finance regime that is less restrictive than today's, while steering clear of the lax standards that emerged during the last decade. Absent any policies to help bridge this gap, the adjustment process will take longer and incur more deadweight losses, pushing house prices lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.
This crossed the line, according to Senator Orrin Hatch (R-Utah), who wrote a scathing letter to the Fed chairman: “I worry that…your…housing white paper…treads too far into fiscal policy, and runs the risk of being perceived as advocacy for particular policy options. [This] white paper is a move in the wrong direction.” He added:
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