Bernanke and Obama’s Declaration of Victory Seals Economic Doom
Posted by Michael A. Kamperman on September 15, 2009
There is now no way out. Today Bernanke and Obama sealed certain economic doom. Fed Chairman Ben Bernanke irresponsibly stated that “technically” the recession is over. Yes, the U.S. will probably report positive GDP this quarter thanks to cash for clunkers and first time home buyers scrambling to ink deals before the deadline. But none of this is sustainable without more help from Washington. The words spoken by Bernanke and President Obama today renders the political possibility of giving the economy the help it really needs all but nil. It will now be the spring of 2010 before a reassessment is made of whether significant additional measures should be taken to aid the economy. The only way it will be before the spring is if unemployment reaches 11% sooner rather than later, a real possibility. How can Bernanke, a so called expert on the Great Depression, declare our recession is over when credit to consumers and businesses is still falling. The vast majority of the money supply in the U.S. comes from credit, not cash. As long as credit is shrinking deflation will continue to take hold. As for President Obama he can certainly talk the talk. He said he was focused on jobs as part of his talk to the AFL-CIO on the need for healthcare reform. But talk is cheap. What we need is a leader who can walk the walk. While President Obama said he was focused on jobs he offered nothing in the way of new initiatives to stem rising unemployment. This amounts to the same liquidationist strategy adopted by Herbert Hoover in the early 1930’s.
The nation’s largest lender, Bank of America, reported today that credit card defaults have risen to 14.54%. Normally charge-offs are in line with the unemployment rate. This lends credence to the concept that the true unemployment rate is closer to the U-6 measurement of 16.8% rather than the official U-3 measurement of 9.7%. The federal government’s statisticians can throw 2 million people out of the official labor force. But that doesn’t mean those 2 million people can still pay their bills. The Bank of America report corresponds closely with the report that 13.2 % of all mortgages in America are 30 days or more past due. It also corresponds closely with the report that consumer credit in July dropped by $21.6 billion. Metrics to measure credit such as the TED Spread and Libor no longer have the same meaning that they did in the past. This is because national governments have stepped in and guaranteed transactions between their largest banks and other institutions. Fear of a systemic collapse is off the table. But banks remain in a Zombie state, the walking dead that are insolvent and unable to lend.
In addition to bank data on credit cards we also received word today from Kroger, one of the nation’s largest grocery chains, that deflation has entered the food business. I doubt President Obama and Fed Chairman Bernanke are heeding the message that deflation is rampant in the U.S. Instead they are relying on the econometric forecasting models of blue chip economists who expect economic growth in the second half of 2009 and in 2010. These are the same econometric forecasters who failed to forecast the current economic downturn. The failure is due to a reliance on post World War II trend data and a severe lack of common sense. We need a third stimulus plan pronto and we need massive quantitative easing. How can the economy receive the kind of support that takes political courage when our leaders are taking a premature victory lap?
