Many Looking for Early Exit Strategy While Economic War is Being Lost
Posted by Michael A. Kamperman on May 5, 2009
When Federal Reserve Chairman Ben Bernanke testified before Congress today there were many questions about whether or not the Fed was prepared to reign in its liquidity support for the markets before inflation takes hold. The Fed Chairman was forced to assure multiple members of Congress that plans were in place to pull away the punch bowl when it came time for the party to end. This is very disconcerting. Where were the questions about why the Federal Reserve has not done more and acted more quickly in the face of the largest and swiftest economic downturn since the Great Depression? Where were the questions about going further and doing more until the economy turned the corner? Far too many in Congress, in the media, and in the business of giving professional investment advice on Wall Street seem to think we are battling the stagflation of the 1970’s. Folks, we are at economic war with a debt induced deflationary depression akin to the battle our parents and grandparents fought in the 1930’s. Like ostriches we are sticking our heads in the sand. We seem to think that if we talk about green-shoots in the economy and early signs the rate of decline is slowing it will lead to an eventual near-term upturn in the economy. Nothing could be further from the truth. By not admitting the desperateness of our situation we delay the eventual debate on how to move forward and we delay the political will to make it happen.
There is no better example of how we are dreaming of green-shoots rather than actually seeing them than in a story appearing in today’s New York Times and linked to this site. The story is titled “Bright Spot in Downturn: New Hiring is Robust.” Sounds like the economy is about to turn the corner and things will soon be better. If your read the headline that would be your impression. But if you read the story you would be scratching your head at the forced attempt to take really negative news and gloss it over with a positive spin. For example, the story says the Cleveland Clinic with 40,000 employees has job openings for 500 people. Sounds great until you read that before the downturn they had job openings for 2,000 people. The story tells about a 29 year old construction worker who applied for a job at a new hamburger restaurant where the hiring of new workers in the economy landed him a job as a fry cook. His pay went from $15 an hour to $7.50 an hour. Could a story about a major hospital having a quarter of the normal job openings and a story about people having to take new jobs at half pay have ever been written before with a positive spin in the New York Times in the post World War II era?
A slowing in the rate of decline is not a positive. The modern global economy has never contracted as fast as it has during the last 7 months. These stories which are appearing in multiple news outlets in addition to the New York Times are doing more harm than good. Our country needs to muster the political will to take drastic action to revive a moribund economy and fix broken credit markets. The longer we stay in a state of denial the more pain we will inevitably suffer. We need massive quantitative easing and we need it now. The political will for action not only doesn’t exist in Washington, it doesn’t exist in the media either.
