Wednesday, December 16, 2009

Ben Bernanke is NOT Man of the Year - "2010: The Year of Severe Economic Contraction"

Ben Bernanke is NOT Man of the Year and two very smart men want you to know why not. The Federal Reserve is handing out over a trillion dollars of our money to lending institutions, much of it to foreign governments, and Barnanke is not answering the questions asked him by our representatives. It becomes clearer and clearer that they are planning the final destruction of the middle class (and the utter abandonment of the poor). Representative Alan Grayson laughs in Ben Bernanke's face (when getting the runaround as he fails to answer simple questions that he knows the answer to): Senator Sanders questions Bernanke about "WHERE IS THE MONEY? WHO GOT IT?" Representative Alan Grayson tells everyone that "Hank Paulson Had a $700M Conflict of Interest." Representative Alan Grayson questions CEO Edward Liddy on AIG Cover-up and asks for names, while Liddy denies that he knows whom was involved (with an almost straight face. We are being lied to every day by people who are benefitting from the lies. And they know that no one will stop them. Mike Whitney lays it all out for us. Ignore this at your peril. (Emphasis marks added - Ed.)

2010: "The Year of Severe Economic Contraction"

December 15, 2009

Upbeat reports in the financial media, belie the effects of the ongoing credit contraction. Massive injections of central bank liquidity have prevented the collapse of financial markets, but have done little to ease the deleveraging of households or stimulate activity the broader economy. The crisis has stripped $13 trillion in equity from working families who now find their access to credit either cut off or severely curtailed by the same banks that received hefty taxpayer-funded bailouts. The fiscal strangulation of the millions of people who are no longer considered "creditworthy" is progressively weakening demand and spreading pessimism across all income levels. Growing public desperation was the focus of a special weekend report by Bloomberg News:

"Americans have grown gloomier about both the economy and the nation's direction over the past three months even as the U.S. shows signs of moving from recession to recovery. Almost half the people now feel less financially secure than when President Barack Obama took office in January, a Bloomberg National Poll shows.

The economy is the country's top concern, with persistently high unemployment the greatest threat the public sees. Eight of 10 Americans rate joblessness a high risk to the economy in the next two years, outranking the federal budget deficit, which is cited by 7 of 10. An increase in taxes is named as a high risk by almost 6 of 10.

Fewer than 1 in 3 Americans think the economy will improve in the next six months . . . . Only 32 percent of poll respondents believe the country is headed in the right direction, down from 40 percent who said so in September." (Bloomberg)

The near-delirious optimism that followed the 2008 presidential election has fizzled in less than 12 months. While the policies of the Obama administration have improved Wall Street's prospects for record profits and lavish bonuses, ordinary working people continue to fight to keep their jobs and maintain their standard of living. Recent data show that household debt which surged during the boom years is being pared back at a historic pace. Household debt to disposable income has plummeted from 136 percent to 122 percent in a little more than a year, leaving many families with little to spend at the malls or shopping centers.

Severe retrenchment has triggered a shift towards personal thriftiness which is reducing economic activity and strengthening deflationary pressures. 2010 is likely to be even worse, as mushrooming foreclosures and commercial real estate defaults force banks to slash lending accelerating the rate of decline. This is from Bloomberg:

"Foreclosure filings in the U.S. will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said. This year's filings will surpass 2008's total of 3.2 million as record unemployment and price erosion batter the housing market . . . .

Foreclosure filings exceeded 300,000 for the ninth straight month in November, RealtyTrac said today. A weak labor market and tight credit are "formidable headwinds" for the economy, Federal Reserve Chairman Ben S. Bernanke said in a Dec. 7 speech in Washington.

The 7.2 million jobs lost since the recession began in December 2007 are the most of any postwar economic slump, Labor Department data show. Unemployment, at 10 percent last month, won't peak until the first quarter, Quigley said." (Bloomberg)

The Obama administration's $787 billion stimulus pushed GDP into positive territory for the first time in more than a year, but the maximum impact has already been felt. President Obama - under advice from his chief advisors - has shifted his focus from soaring unemployment to long-term deficits. Additional stimulus will be no more than $200 billion, of which, a mere $50 billion will go towards jobs initiatives.

At the same time, Fed chair Ben Bernanke will terminate the quantitative easing (QE) program which kept long-term interest rates low while providing financing for the housing market. When the program ends, rates will rise, housing prices will tumble, and liquidity will drain from the system. The end of QE coupled with dwindling stimulus ensures that economy will slide back into recession in the 2nd or 3rd Quarter of 2010.

Policymakers have decided to create conditions that are favorable to financial sector consolidation and the further privatization of public assets. The economy is being strangled by design.

Here's economist Mark Thoma explaining why consumption will not return to pre-crisis levels:

"For the immediate future and likely for much longer than that, slow consumption growth is expected. One way that could change is if the government implements a successful jobs program or uses some other means to increase household income (e.g., a payroll tax cut), and households spend rather than save the extra income . . ., but the political environment makes a jobs program or further fiscal policy action highly unlikely.

Similarly . . . the Fed is anxious to unwind its massive policy intervention, not extend it, so monetary policy is unlikely to help much either. Since monetary and fiscal policy authorities are unwilling to provide further help, slow growth is the best outcome we're likely to get." ("Will Consumption Growth Return to Its Pre-Recession Level?" Mark Thoma, http://www.moneywatch.com/)

Along with flagging consumption, economists Antonio Fatas and Ilian Mihov show why both investment and employment will not rebound in the way that many bullish analysts expect. By tracking the rate of recovery in the last 5 recessions, the two economists show that demand will remain flat for a prolonged period of time, precipitating a "jobless" and "investmentless" recovery. Their research supports additional stimulus to reduce the output gap and engage the labor force in productive activity. The administration's policies are the exact opposite of the majority of professional economists who believe that deficits need to increase to effect overcapacity and underutilization.

Obama is deliberately steering the economy into a double-dip recession. While financial institutions have been propped up with zero-rates, myriad lending facilities and boatloads of Fed liquidity, the real economy continues on a downward path.

As households rebalance accounts and increase savings, the signs of distress are becoming more apparent. In Europe, the ECB and IMF have begun to use the financial crisis to wrest control of the budgets of deficits-plagued nations to apply business-friendly austerity measures. The economic meltdown - that was generated by overleveraged banks trading dodgy investment paper - is now being used to assert corporate/bank control over sovereign nations. Greece, Ireland, Iceland, Ukraine, Latvia, Lithuania, Portugal and Spain are all presently in the crosshairs of neoliberal restructuring. Surely, the same policies will be applied within the United States under the guidance of supply-side economist and chief advisor to the president, Lawrence Summers. Thus, in 2010, economic contraction will continue to force state and local governments to lay off millions of more workers while public assets and services are made available at firesale prices to private industry.

Debt deflation and deleveraging will continue into 2011, while foreclosures, personal bankruptcies and defaults continue to mount. The public's frustration with ineffective government policies, is likely to change from pessimism to rage on short notice. The prospect of social unrest or sporadic incidents of violence can no longer be excluded.

Take heed, citizens, it's only your life. Suzan _________________________

4 comments:

BadTux said...

I have a different opinion. Ben Bernanke has done exactly what a central banker is supposed to do in this kind of crisis. The other stuff -- legislating more oversight, taking over banks and running them to benefit the people, etc. -- isn't something he has any power over, that's those dipshits in Congress. All he has power over is the money supply and doing what's necessary to prevent a deflationary spiral, and he's done that, and done that well. Meanwhile, Congress. Congress has done... what? A too-small stimulus, pork to their cronies, and otherwise nothing at all, nothing, nothing, NOTHING. As useless as a bicycle for fish.

And then the same assholes in Congress who fiddled while the economy burned, who *still* refuse to do the well-known and time-proven things we *know* work because they worked for FDR in the Great Depression, the people who are the village idiots of the U.S. government, dare ask Ben Bernanke questions about what he has done and what he has doing? That's like the village idiot or George W. Bush asking Albert Einstein questions about relativity. They wouldn't understand the answer no matter how much he tried to answer it, because they're morons, complete mathematical and economic illiterates, who lack even the slightest acquaintance with the academic background necessary to understand the answers they are demanding. Bernanke explaining economics to these dipwads is like me explaining economics to my cats. Hell, my cats probably would understand more than Barney "I Hate Math" Frank... at least they don't start out under the impression that they have more sense than God gave a football.

-- Badtux the Economics Penguin

Lisa G. said...

meh :( My comment didn't post.

Badtux - I love how you change you expertise to suit the situation. :) You seem to know a lot about monetary policy. I see your point, but I still can't stand Bernanke.

I agree that Congress should do something but they are mired in their own petty difference and can't seem to get shit done. They are less than worthless.

However, I wish that Obama would do something other than scold the bankers for their abhorrent behavior. He seems all about Wall Street lately and not about Main Street. This 'jobs summit' BS isn't going to cut it. He needed to do something yesterday. Whip out an infrastructure plan - something to put people back to work. He's starting to sound like the wishy- washy spineless Dem. Open your mouth man and say something! People are hurting. This will kill us in 2010 and we'll be handing the Congress back to the Republicans; we've all seen what they do to the economy. Their latest ploy is to reduce the minimum wage again. These people haven't had a new idea since the 30's. Now they are recycling their old bad ideas.

Serving Patriot said...

Suzan,

Thanks for this post. Nothing like the visual (and the ever awesome Alan Grayson!) to illustrate the absolute contempt the banksters have for everyone else.

Too bad we can never get any of these clips onto the TV during the evenings when our people watch the Pharma ads with the occasional "news" story interspersed within. At least we have the intertubz!

SP

Suzan said...

Such a wise comment, SP.

Yes, I've been trying to run clips whenever I can just because they don't get anywhere enough publicity otherwise, and how else can citizens on the ground get any information on how their largesse is being perceived/consumed?

Thanks for your comment, friend!

S

during the evenings when our people watch the Pharma ads with the occasional "news" story interspersed within.