Will Obama and Bernanke take the safe route today?

Federal Reserve Chairman Ben Bernanke speaks during a press briefing at the Federal Reserve building.

Jeremy Hobson: Job growth is the subject of President Obama's speech tonight before Congress, and it's where we'll start as we continue with "The Breakdown: Our economy one step at a time." That's Marketplace's special look at jobs and getting America back to work.

Diane Swonk is chief economist with Mesirow Financial. She's with us live now from
Chicago. Good morning.

Diane Swonk: Good morning.

Hobson: Well, Diane, first on the president's speech. Let's talk about a dilemma that seems to be shaping up, which is that either the president might propose something that's so big that it can't get through Congress; or he proposes something so small that it won't actually do much to create jobs.

Swonk: That's exactly the problem. I think he will go somewhat big on his proposal, but we all know much of it's dead on arrival as Republicans have already made clear. So, not being able to think in this broader term of stimulus within the context of austerity has really hoveled fiscal policy for the moment.

Hobson: Alright, well what about the Fed? Chairman Bernanke is speaking today, and some people are starting to talk about maybe, he might actually announce some sort of new stimulus. What do you know about that?

Swonk: Well he's not going to announce anything new today, but I think he'll underscore what the Fed can do and then execute on that in September. One of the new things we're going to see that the Fed has talked about is something called "Operation Twist," which ironically enough was done in the early 1960s and named after Chubby Checkers' famous song, "The Twist."

Hobson: When I hear "the twist," I think: let's twist again like we did last summer. If this is a term that we're going to be hearing a lot of -- the twist -- tell us what it means. What is it?

Swonk: Well you know, it's not all that different from QE2 -- which we did have last summer so there's some similarities -- but it won't increase the Fed's balance sheet. What the Fed is going to do is sell short-term treasury bonds, and buy long term to try to lower long-term bond yields. That's the goal -- it was the goal of QE2 -- which we did see happen in the lead up to QE2. And we're already seeing bond yields move down as traders and financial markets expect the Fed to do exactly that.

Hobson: Why long term? What does that do?

Swonk: Well what it does is, it forces people out of the safety of not making bets on the future to placing bigger bets in the future of the U.S., in equity markets and other assets. The issue is, to them, to get out of safe, sort of current day cash kind of investments into making long term bets, riskier bets on the future. And that will help us to grow long term.

Hobson: One more quick thing, Diane. Here's Mitt Romney, last night in the debate, talking about Ben Bernanke.

Mitt Romney: I think Ben Bernanke has overinflated the amount of currency that he's created. QE2 did not work -- it did not get Americans back to work, it did not get the economy growing again. We're still seeing declining numbers in prior quarter estimates as to what the growth would be.

Hobson: So does he have a point, Diane?

Swonk: I think presidents and presidential candidates should stick to fiscal policy, not monetary policy. Ben Bernanke's one of the bravest men I know.

Hobson: Diane Swonk, chief economist with Mesirow Financial, thanks as always.

Swonk: Thank you.

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