The Bernank' Speaks and Gets Vote of No Confidence, Jim Grant and Bill Gross React, Graph on Keynesian Responses to Recessions, and CPI Calculation Changing?

Fed Chairman Bernanke had a kind of press conference today as the Federal Reserve Board put out a new report adjusting its economic forecast.  So what's the consensus?

In an updated forecast, the Fed estimated Wednesday that the economy will grow between 2.7 percent and 2.9 percent this year. That's down from its April estimate of between 3.1 percent and 3.3 percent. The downgraded revision is an acknowledgement that the economy has slowed, in part because consumers have been squeezed by higher gasoline prices.
Growth at the rate the Fed is projecting won't be enough to significantly lower unemployment, now at 9.1 percent. The Fed estimates that unemployment will still be around 8.6 percent to 8.9 percent by the end of the year.

The central bank now sees inflation rising 2.3 percent to 2.5 percent this year, as measured by a price gauge tied to consumer spending. That compares with an April forecast that showed a higher upper range of 2.8 percent.
The Fed estimates that "core" inflation, which excludes energy and food, will increase 1.5 percent to 1.8 percent. That's slightly higher than its April forecast of an increase of 1.3 percent to 1.6 percent. The revised estimate is still within the Fed's comfort zone for inflation.

Bernanke gets one thing right though:

The central bank chief and his lieutenants are expressing concern that Congress’s failure to close what Dallas Fed President Richard Fisher called the nation’s “fiscal sinkhole” puts the economy at risk. At the same time, they say that acting too quickly may choke off a recovery hobbled by an unemployment rate above 9 percent.

Still no mention of QE3, but Bill Gross is making his own prediction:

And the always great Jim Grant weights in:

While Greece's Parliament gave the PM a pass yesterday, according to this CNBC poll, the public isn't being so kind to Bernanke:

And now even Newt Gingrich of all people is starting to question the Fed:

Gingrich: "This economy is going to stay mired in a bad economy until we bring the Fed under control and we repeal the Dodd-Frank bill"

Well well, maybe Ron Paul doesn't look so crazy (I should say sane) compared to the GOP candidates now.

Speaking of crazy, check out this New York Times interactive graphic on Keynesian responses to recessions since J.F.K. took office:

These dudes link every government policy to Keynesian "stimulus."  I always love how tax cuts seem to count as "stimulus."  Such thinking implies that the government is somehow entitled to money, therefore when it allows the public to keep more of its earnings, it is "stimulating" the economy.  If that's the case, why aren't Paul Krugman and Brad Delong sounding the alarm for more tax cuts?  In the end, if tax cuts are financed by deficit spending (such as W. Bush's or Reagan's), then it is seen as "stimulus" rather than cutting the size of government.  Though tax cuts are good, deficit spending to pay for them is bad as well, but not as bad as increased government spending financed by a deficit.  I should also mention that at least Modern Monetary Theorists promote tax cuts as well, though don't seem to regard money as any tangible thing.

So there is a report going around on recent discussions some lawmakers have had on changing the way the CPI is calculated:

WASHINGTON -(Dow Jones)- Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks.

According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically.

Such a move is widely seen by economists as resulting in a slower rise in inflation. That would impact an array of federal programs that are linked to CPI including the Social Security program and income tax brackets set by the federal government.

The proposal could lower federal spending by around $220 billion over the next decade, based on calculations by last year's White House deficit commission, which recommended the change as part of its final report.

According to two congressional aides familiar with the budget negotiations, the shift is being "seriously discussed" as part of the ongoing talks to strike a budget deal, that would be used to ease the passage of a required increase in the country's debt limit.

Those talks involve Democratic and Republican lawmakers from both chambers and are led by Vice President Joe Biden. The group held its latest meeting Tuesday as they strive to reach the broad outlines of a compromise on federal spending by the end of the month.

In a press conference that took place before the meeting, House Majority Leader Eric Cantor (R., Va.) declined to comment on the specific proposal, other than to say that "a lot of things are on the table." But asked whether the proposal would be interpreted as a tax increase and therefore a non-starter for Republicans, Cantor said it could be seen as both impacting tax rates and benefits paid out by the federal government.

When asked about the idea after the meeting, Rep. Jim Clyburn (D., S.C.) said everything is being discussed.

It is a rare proposal in that it would likely lead to both lower benefits paid to seniors and higher taxes paid by most people who pay federal income tax. As such, it could allow Republicans to argue they are tackling federal entitlement programs such as Social Security, and permit Democrats to say they are increasing taxes as part of any budget deal that is reached.

It could be easier for both parties to agree on than a significant overhaul to the Medicare proposal or an increase of taxes on wealthier Americans.

"It's certainly something that is going to be considered," said James Horney, director of federal fiscal policy at the Center for Budget and Policy Priorities, a liberal think tank. "There are questions whether it would be politically easy."

Several senators that are not party to the Biden-led talks voiced support for the proposal including Budget Committee Chairman Kent Conrad (D., N.D.), while Sen. John Thune (R., S.D.), a member of the Republican leadership team, said it should be looked at as part of the negotiations.

I bet Krugman is jumping for joy over this.  All changing the CPI does to reflect lower inflation is give an excuse for the Fed to print more money, for the government to dole out less benefits to programs that are linked to the CPI, and for lawmakers to continue goring on spending to attract lobbyists who will happily pay for them to gorge on expensive food, drinks, and call-girls.  Meanwhile, Grandma's Social Security payments dwindle, her savings lose value, and McDonald's starts to seem like a high class meal.  Ah, the art of politics.

Update:  Brent Budowsky of The Hill writes another great column on the growing influence of Ron Paul on the GOP:

Now Newt Gingrich and Tim Pawlenty are parroting Rep. Ron Paul (R-Texas) in criticizing the Federal Reserve Board while Mitt Romney and a growing number of congressional Republicans are beginning to sound like traces of Ron Paul regarding Afghanistan.

There is bobbing and weaving among the Republicans about these matters, and there is hemming and hawing compared to Dr. Paul's clarity about these matters. However, make no mistake about the fact that Ron Paul is now exerting a huge degree of influence on the positions of Republican candidates for president and Republicans in Congress on both economic and foreign policy.

Whether I agree with Dr. Paul or not, and whether his supporters agree with my columns or not, I do my best to call them as I see them. When the final books are written about the history of the 2012 campaign, I believe that the gentleman from Texas will be placed somewhere on the list of winners, for reasons stated here.

And the man never stops:

WASHINGTON (MarketWatch) -- Rep. Barney Frank (D-Mass.) and Rep. Ron Paul (R-Tex.) said they will introduce a bill on Thursday to let states legalize, regulate, tax, and control marijuana without federal interference. The legislation would limit the federal government's role in marijuana enforcement to cross-border or inter-state smuggling, allowing people to legally grow, use or sell marijuana in states where it is legal. The legislation is the first bill ever introduced in Congress to end federal marijuana prohibition.

When I was driving to work today, I saw someone with a bumper sticker that said "Don't Blame Me, I Vote for Ron Paul."  Needless to say, it was awesome.