Posted by Karl Denninger
Supported by stimulative monetary and fiscal policies and the concerted efforts of policymakers to stabilize the financial system, a recovery in economic activity appears to have begun in the second half of last year.
On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters. Consumer spending continued to increase in the first two months of this year and has now risen at an annual rate of about 2-1/2 percent in real terms since the middle of 2009.
It has? Uh, no, Ben, it hasn’t. The following illustrates this:
Real GDP has not been expanding at all. What’s expanded is this:
That’s not private demand, it’s government subsidy replacing private demand. But now, having effectively enabled if not demanding that this fiscal profligacy take place, Bernanke says:
Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance. A credible plan for fiscal sustainability could yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence. Timely attention to these issues is important, not only for maintaining credibility, but because budgetary changes are less likely to create hardship or dislocations when the individuals affected are given adequate time to plan and adjust. In other words, addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult.
Note carefully the above chart.
During the 2000 “recovery” from the Tech Wreck there was no actual recovery in GDP over 2% in the private economy. The entirety of the rest was government fiscal support through deficit spending – that deficit never went below $500 billion annually!
The government often makes utterly-unsupportable claims about what their “deficit” actually is. But Treasury’s own data – “Debt to the Penny” – “outs” all these off-balance sheet and off-budget programs in the end, as that which is spent must either be taxed or borrowed.
Bernanke is like the fox who herds the chickens into the yard, then blocks the exit with his gaping maw.
Having created the conditions for government to blow money like no tomorrow, and in fact goading government to do so in previous testimony before Congress (anyone remember the “fiscal has to do its part” speeches?) he now comes to Congress and warns them to cut the crap – after goading them into committing the sin in the first place.
Bernanke has to know that withdrawing the federal deficit spending will expose the 10% annual compounded GDP gap. It cannot be otherwise. There is such a monstrous gap between private final demand the published figures (approximately 20% now top-to-bottom from 2007!) that it cannot avoid being both dramatic and destructive when that subsidy disappears.
And disappear it will – either by Congressional action or by the market forcing withdrawal, as is now occurring in Greece.
The misdirection here is that Bernanke is trying to avoid being tagged as the cause of the GDP “correction” that will inevitably follow withdrawal of that support.
And note: In Bernanke’s testimony today, under questioning, he specifically said that we cannot inflate out of the mess due to indexing of off-sheet liabilities – Social Security and Medicare (told ‘ya so – again!)
Yet it was Bernanke himself who pushed the government to engage in this path of action in the first place, claiming that it was “essential.”
Bernanke is relying on Americans having the memory of a mouse, being too self-absorbed in American Idol to remember that it was he who demanded the federal fiscal irresponsibility in the first place.