This is one of the most-ridiculous speeches I’ve ever read, yet in it admission of culpability is found – if you read it carefully.
Chairman Ben S. Bernanke
At the Economic Club of Minnesota Luncheon, Minneapolis, Minnesota
September 8, 2011
The U.S. Economic Outlook
Good afternoon. I am delighted to be in the Twin Cities and would like to thank the Economic Club of Minnesota for inviting me to kick off its 2011-2012 speaker series. Today I will provide a brief overview of the U.S. economic outlook and conclude with a few thoughts on monetary policy and on the longer-term prospects for our economy.
The Outlook for U.S. Economic Growth
In discussing the prospects for the economy and for policy in the near term, it bears recalling briefly how we got here. The financial crisis that gripped global markets in 2008 and 2009 was more severe than any since the Great Depression.
Yes, after 30 years of permitting this to occur you might expect a crisis. The only uncertainty was exactly when said crisis would erupt, not whether it would
Let me remind everyone who’s responsible for the amount of credit created in the economy:
Section 2A. Monetary Policy Objectives
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates
In other words, Ben Bernanke (aka “The Fed”) and his predecessors are directly responsible for the above chart. They have the legal authority and duty to prevent that from occurring. They have willfully and intentionally failed to exercise that authority. This was the root cause of the crisis.
Economic policymakers around the world saw the mounting risks of a global financial meltdown in the fall of 2008 and understood the extraordinarily dire economic consequences that such an event could have.
All of those policymakers willfully and intentionally ignored the very evidence and statistics they collect and publish for thirty years. Please note the source of the data on the above chart.
Governments and central banks consequently worked forcefully and in close coordination to avert the looming collapse. The actions to stabilize the financial system were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus. Despite these strong and concerted efforts, severe damage to the global economy could not be avoided. The freezing of credit, the sharp drops in asset prices, dysfunction in financial markets, and the resulting blows to confidence sent global production and trade into free fall in late 2008 and early 2009.
A drunk cannot be cured by giving him more whiskey. The FOMC’s continued and intentional refusal to follow the law is responsible not only for the crisis but for the lack of economic clearing that must take place.
It has been almost exactly three years since the beginning of the most intense phase of the financial crisis, in the late summer and fall of 2008, and a bit more than two years since the official beginning of the economic recovery, in June 2009, as determined by the National Bureau of Economic Research’s Business Cycle Dating Committee. Where do we stand? There have been some positive developments over the past few years. In the financial sphere, our banking system and financial markets are significantly stronger and more stable. Credit availability has improved for many borrowers, though it remains tight in categories–such as small business lending–in which the balance sheets and income prospects of potential borrowers remain impaired. Importantly, given the sources of the crisis, structural reform is moving forward in the financial sector, with ambitious domestic and international efforts under way to enhance financial regulation and supervision, especially for the largest and systemically most important financial institutions.
Actually, that’s not true. Something like $3 trillion has simply been transferred from the taxpayer through printed debt to the financial system in order to prop up these otherwise-insolvent institutions. This too is clear – the amount of the fiscal deficit in the United States went from approximately $600 billion annually to $1,600 billion in 2008 and has remained there for three years. Not-coincidentally the largest area of contraction in open credit in the Fed Z1 reports is found in the financial products credit, and it almost-exactly matches this printed-up and transferred indebtedness.
However, this has not actually solved the problem, since the debt still exists – we have simply changed who has to pay it down or default it. In Europe we have found that the limits of this behavior have been reached, and the result is Greece. In the United States we have not yet found that “corner”, but if we do there will be no means to recover from the events that follow. Most-importantly no economist or analyst, myself included, can tell you with certainty where that line is or how close we may be to it, since when (not if) fiscal consolidation takes place government funding will of necessity decrease since decreasing deficit spending, whether by increasing taxes or cutting spending, must on an arithmetic basis reduce GDP (either “C”, “I” or “G” will contract.) As such the debt coverage ratio (percentage of tax revenues compared to gross debt ot be services) will move the wrong way when this event takes place. Since the magnitude of this move cannot be accurately ascertained nor can the public response be ascertained with certainty there is no way to know how close to the cliff you are until it is too late and you go off the edge.
Should this happen the very existence of the United States Government is called into question.
Nevertheless, it is clear that the recovery from the crisis has been much less robust than we had hoped. From recent comprehensive revisions of government economic data, we have learned that the recession was even deeper and the recovery weaker than we had previously thought; indeed, aggregate output in the United States still has not returned to the level that it had attained before the crisis. Importantly, economic growth over the past two years has, for the most part, been at rates insufficient to achieve sustained reductions in the unemployment rate, which has recently been fluctuating a bit above 9 percent.
That is in no small part because the FOMC has, through its policies, destroyed both return on honest savings and capital formation. The prudent, primarily investors and senior citizens who did not lever up, did not take out home equity loans to buy Hummers and did not act in an extravagant manner have had their safe return capacity destroyed. This in turn has resulted in the destruction of capital formation and consumption spending that would otherwise be possible from lending surplus.
For as long as real borrowing costs are negative — which means as long as interest rates remain near or at zero — this situation will persist and so will the economic malaise.
The pattern of sluggish economic growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an annual rate of less than 1 percent, on average, in the first and second quarters. Some of this weakness can be attributed to temporary factors, including the strains put on consumer and business budgets by the run-ups earlier this year in the prices of oil and other commodities and the effects of the disaster in Japan on global supply chains and production. Accordingly, with commodity prices coming off their highs and manufacturers’ problems with supply chains well along toward resolution, growth in the second half looks likely to pick up. However, the incoming data suggest that other, more persistent factors also have been holding back the recovery. Consequently, as noted in its statement following the August meeting, the Federal Open Market Committee (FOMC) now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the June meeting, with greater downside risks to the economic outlook.
Absolute nonsense. It is the intentional distortion in the market caused by The Fed that is preventing recovery. By “protecting” the big financial institutions The Fed is starving the remainder of the economy. The crumbs that remain are insufficient to provide a recovery and no such recovery will be obtained until and unless the boot of The Fed is lifted from the markets.
One striking aspect of the recovery is the unusual weakness in household spending. After contracting very sharply during the recession, consumer spending expanded moderately through 2010, only to decelerate in the first half of 2011. The temporary factors I mentioned earlier–the rise in commodity prices, which has hurt households’ purchasing power, and the disruption in manufacturing following the Japanese disaster, which reduced auto availability and hence sales–are partial explanations for this deceleration. But households are struggling with other important headwinds as well, including the persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high for many, notwithstanding that households, in the aggregate, have been saving more and borrowing less. Even taking into account the many financial pressures they face, households seem exceptionally cautious. Indeed, readings on consumer confidence have fallen substantially in recent months as people have become more pessimistic about both economic conditions and their own financial prospects.
Abject nonsense. There is no “saving” per-se; households are attempting to keep their heads above water in a world where there is no safe return available for money. After driving everyone into the stock market — an act I remind you, Bernanke, you publicly stated was one of your goals and you took credit for it — the public has now again seen their investment returns destroyed and were you in any way “late” to buy back in after QE2 began you have lost money once more.
Compared with the household sector, the business sector generally presents a more upbeat picture. Manufacturing production has risen nearly 15 percent since its trough, driven importantly by growth in exports. Indeed, the U.S. trade deficit has narrowed substantially relative to where it was before the crisis, reflecting in part the improved competitiveness of U.S. goods and services. Business investment in equipment and software has also continued to expand. Corporate balance sheets are healthy, and although corporate bond markets have tightened somewhat of late, companies with access to the bond markets have generally had little difficulty obtaining credit on favorable terms. But problems are evident in the business sector as well: Business investment in nonresidential structures, such as office buildings, factories, and shopping malls, has remained at a low level, held back by elevated vacancy rates at existing properties and difficulties, in some cases, in obtaining construction loans. Also, some business surveys, including those conducted by the Federal Reserve System, point to weaker conditions recently, with businesses reporting slower growth in production, new orders, and employment.
Have you seen the high-yield market of late?
Why has this recovery been so slow and erratic? Historically, recessions have tended to sow the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand. As the business cycle bottoms out and confidence returns, this pent-up demand, often augmented by the effects of stimulative monetary and fiscal policies, is met through increased production and hiring. Increased production in turn boosts business revenues and increased hiring raises household incomes–providing further impetus to business and household spending. Improving income prospects and balance sheets also make households and businesses more creditworthy, and financial institutions become more willing to lend. Normally, these developments create a virtuous circle of rising incomes and profits, more-supportive financial and credit conditions, and lower uncertainty, allowing the process of recovery to develop momentum.
That’s not recovery — it’s a Ponzi Scheme. The places that “spending” goes in your dreamworld do not increase in utility value. Only the presence of a new and bigger sucker makes this process “work”, and only until the suckers run out.
By definition an economic act that can only bring profit if someone else will pay for more for the same thing is a ponzi scheme as it requires an ever-increasing set of new buyers with more and more money or it collapses. The Fed’s acts since the 1980s have been to serially blow these bubbles. This is an intentional series of acts.
These restorative forces are at work today, and they will continue to promote recovery over time. Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis. These two features of the downturn, individually and in combination, have acted to slow the natural recovery process.
Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time–with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines–the rate of new home construction has remained at less than one-third of its pre-crisis peak. Depressed construction also has hurt providers of a wide range of goods and services related to housing and homebuilding, such as the household appliance and home furnishing industries. Moreover, even as tight credit for builders and potential homebuyers has been one of the factors restraining the housing recovery, the weak housing market has in turn adversely affected financial markets and the flow of credit. For example, the sharp declines in house prices in some areas have left many homeowners “underwater” on their mortgages, creating financial hardship for households and, through their effects on rates of mortgage delinquency and default, stress for financial institutions as well.
The “housing market” had exactly nothing to do with anything sustainable. You, Bernanke, opined in 06 and 07 that house prices would be “supported” by both economic and demographic factors. You were wrong on both counts; a house never increases in utility value once constructed (unless you add to it later on) and in fact it is a sinking-value asset! That is, it is a consumer durable good.
The intentional more than three-decade long credit expansion drove the housing bubble. It was not an overnight phenomena and once the bubble reached the housing sector the outcome was certain. We have not removed that excessive expansion in prices and until we do equilibrium will not be found.
As I noted, the financial crisis of 2008 and 2009 played a central role in sparking the global recession. A great deal has been and continues to be done to address the causes and effects of the crisis, including extensive financial reforms. However, although banking and financial conditions in the United States have improved significantly since the depths of the crisis, financial stress continues to be a significant drag on the recovery, both here and abroad. This drag has become particularly evident in recent months, as bouts of sharp volatility and risk aversion in markets have reemerged in reaction to concerns about European sovereign debts and related strains as well as developments associated with the U.S. fiscal situation, including last month’s downgrade of the U.S. long-term credit rating by one of the major ratings agencies and the recent controversy surrounding the raising of the U.S. federal debt ceiling. It is difficult to judge how much these events and the associated financial volatility have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence, and that they pose ongoing risks to growth.
We ran out of suckers. That always happens when you run a pyramid scheme. Welcome to reality Ben. You presided over this implosion and worse, you were part of The Fed when Greenspan blew the last and biggest bubble (thus far anyway.) The chart above does not lie – it’s YOUR data!
While the weakness of the housing sector and continued financial volatility are two key reasons for the frustratingly slow pace of the recovery, other factors also may restrain growth in coming quarters. For example, state and local governments continue to tighten their belts by cutting spending and reducing payrolls in the face of ongoing budgetary pressures, and federal fiscal stimulus is being withdrawn. There is ample room for debate about the appropriate size and role for the government in the longer term, but–in the absence of adequate demand from the private sector–a substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring.
Your bubble-blowing managed to entice state and local governments to join in the fraudfest. As a result we have “disabled” firefighters who are able to run Ironman competitions and other similar outrages. Unfortunately that “bigger sucker” also has disappeared and now the truth of these budgets — they were never able to be funded in the intermediate and longer term – has come to the forefront.
The prospect of an increasing fiscal drag on the economy in the face of an already sluggish recovery highlights one of the many difficult tradeoffs currently faced by fiscal policymakers. As I have emphasized on previous occasions, without significant policy changes to address the increasing fiscal burdens that will be associated with the aging of the population and the ongoing rise in health-care costs, the finances of the federal government will spiral out of control in coming decades, risking severe economic and financial damage. But, while prompt and decisive action to put the federal government’s finances on a sustainable trajectory is urgently needed, fiscal policymakers should not, as a consequence, disregard the fragility of the economic recovery. Fortunately, the two goals–achieving fiscal sustainability, which is the result of responsible policies set in place for the longer term, and avoiding creation of fiscal headwinds for the recovery–are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the long term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.
Bah. The longer we keep at this crap the worse the outcome will be. The pain is inescapable.
We must take it now and cut off the gangrenous arm before we lose our life!
The Outlook for Inflation
Let me turn now from the outlook for growth to the outlook for inflation. Prices of many commodities, notably oil, increased sharply earlier this year. Higher gasoline and food prices translated directly into increased inflation for consumers, and in some cases producers of other goods and services were able to pass through their higher costs to their customers as well. In addition, the global supply disruptions associated with the disaster in Japan put upward pressure on motor vehicle prices. As a result of these influences, inflation picked up significantly; over the first half of this year, the price index for personal consumption expenditures rose at an annual rate of about 3-1/2 percent, compared with an average of less than 1-1/2 percent over the preceding two years.
Abject nonsense. The biggest impact on automobile price inflation was in fact “Cash for Clunkers”, which destroyed the used car market for people of modest means. The architects of that plan should be rotting in federal prison.
However, inflation is expected to moderate in the coming quarters as these transitory influences wane. In particular, the prices of oil and many other commodities have either leveled off or have come down from their highs. Meanwhile, the step-up in automobile production should reduce pressure on car prices. Importantly, we see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy.
Oh really? You don’t get out much beyond the beltway do you?
Longer-term inflation expectations have remained stable according to the indicators we monitor, such as the measure of households’ longer-term expectations from the Thompson Reuters/University of Michigan survey, the 10-year inflation projections of professional forecasters, and the five-year-forward measure of inflation compensation derived from yields of inflation-protected Treasury securities.
How many of those are you tampering with (yields, etc)?
In addition to the stability of longer-term inflation expectations, the substantial amount of resource slack that exists in U.S. labor and product markets should continue to have a moderating influence on inflationary pressures. Notably, because of ongoing weakness in labor demand over the course of the recovery, nominal wage increases have been roughly offset by productivity gains, leaving the level of unit labor costs close to where it had stood at the onset of the recession. Given the large share of labor costs in the production costs of most firms, subdued unit labor costs should be an important restraining influence on inflation.
Right. So as prices on things like gasoline and food go up, there’s no spiral. Therefore, no “huge” inflation spiral as you can’t couple it back to wages (thank Clinton, Bush, and now Obama for all the offshoring to China!) – the consequence instead of a 1970’s style inflationary spiral will be the decimation of everyone in the bottom three quintiles of Americans.
This too is an intentional act and this too you are responsible for.
Although the FOMC expects a moderate recovery to continue and indeed to strengthen over time, the Committee has responded to recent developments–as I have already noted–by marking down its outlook for economic growth over coming quarters. The Committee also continues to anticipate that inflation will moderate over time, to a rate at or below the 2 percent or a bit less that most FOMC participants consider to be consistent with the Committee’s dual mandate to promote maximum employment and price stability.
Read the top quite from your web site on the your responsibilities again. STABLE prices are unchanging prices. It is specifically your refusal to follow the damned law and Congress’ refusal to shove that law up your backside that led to the bubbles and now the economic pain we must endure.
It cannot be avoided.
Given this outlook, the Committee decided at its August meeting to provide more specific forward guidance about its expectations for the future path of the federal funds rate. In particular, the statement following the meeting indicated that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That is, in what the Committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low level for at least two more years.
In other words as I noted at the time you forecasted that the economy is going to suck and those prudent actors in the economy, including Granny, are going to continue to have their ability to survive destroyed.
How The Fed survives in that environment is beyond me, given that Seniors tend to vote rather often. I suspect the only way your institution makes it is if you manage to continue to lie about how it all happened and people forget their 5th Grade Math.
You might succeed at that, given America’s preoccupation with the NFL and Dancing With The Stars. If you do, we as Americans deserve what we get.
In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. My FOMC colleagues and I will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September and are prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability.
None of your other “Tools” have worked so why would they now?
Let me conclude with just a few words on the longer-term prospects for our economy. As monetary and fiscal policymakers consider the appropriate policies to address the economy’s current weaknesses, it is important to acknowledge its enduring strengths. Notwithstanding the trauma of the crisis and the recession, the U.S. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years. Our economy retains its traditional advantages of a strong market orientation, a robust entrepreneurial culture, and flexible capital and labor markets. And our country remains a technological leader, with many of the world’s leading research universities and the highest spending on research and development of any nation. Thus I do not expect the long-run growth potential of the U.S. economy to be materially affected by the financial crisis and the recession if–and I stress if–our country takes the necessary steps to secure that outcome. Economic policymakers face a range of difficult decisions, and every household and business must cope with the stresses and uncertainties that our current situation presents. These are not easy tasks. I have no doubt, however, that those challenges can be met, and that the fundamental strengths of our economy will ultimately reassert themselves. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability.
There is not a snowball’s chance in Hell that the political process will yield actual productive results. The only “strength” our economy has had for the last 30 years has been in the area of financial fraud.
In a just world that would lead to indictments and handcuffs.
Obviously, we don’t live in such a world.