Wall Street Whispers: Bernanke, Get A Clue

NEW YORK (TheStreet) -- This is Ben Bernanke's time to shine -- or utterly fail.

The Federal Reserve chairman is facing an unenviable challenge ahead of him: How can he get the economy to grow when no one wants to borrow or lend?

So far, the Fed's assurances that money will stay cheap indefinitely haven't been doing much good. Bernanke's statement last week that the government is prepared to take even more dramatic steps than setting its rate target at 0% to 0.25% sent rate futures tumbling even further.

Federal Reserve Chairman Ben Bernanke may be waiting too long to fight the deflation battle.

None of this bodes well for consumers, the financial industry or U.S. economic growth.

The Fed's two main purposes are thus: To keep the cost of living in a moderate range while promoting economic growth and to keep the jobless rate down. So far, Bernanke's crew is failing on the jobs mandate and teetering near failure on the cost-growth dynamic. In fact, the Fed's cheap-money policy may now be stunting growth.

For instance, since April 2009, more than 7 million mortgages have been adjusted into lower rates, according to the Treasury Department, saving consumers $12.7 billion in interest payments.

But consumers haven't been blowing their extra dough at the mall; they've been saving the cash or paying down other debts. Since the financial crisis first blew up, the personal savings rate has more than tripled to above 6% from roughly 2%. Meanwhile, revolving consumer credit - credit cards and the like - has declined by a whopping 14% to $826.5 billion.

As far as employment goes, 4.2 million U.S. jobs have been lost on a net basis under Bernanke's tenure so far, according to the Labor Department. The unemployment rate remains stubbornly high -- 9.5% if one goes by the official government statistic or above 20% if one factors in all of those who are out of work.

While jobs and spending have grabbed Main Street's attention, a more ghoulish threat may be lurking ahead.

During Bernanke's first term, consumers faced price increases above 5%, with gasoline topping $5 per gallon in certain parts of the country and food prices rising in kind. There were endless reports of workers and companies struggling to make ends meet due to higher costs for travel and food - suburbanites with long commutes, farmers hauling hay, executives reliant on airline travel, low-income parents who needed to put food on the table.

Now, as economic growth has slowed and the jobless rate remains high, there's increasing consensus in the market that the country may enter a deflationary period, which could have even more disastrous results. (See: Japan for reference.)