“It now appears likely that real gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly. We expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies; and growth is expected to proceed at or a little above its sustainable pace in 2009, bolstered by a stabilization of housing activity, albeit at low levels, and gradually improving financial conditions. “–Ben Bernanke, Congressional testimony, April 2, 2008.
Mr. Bernanke, Chairman of The Federal Reserve and an esteemed economist said, about a year ago, that the economy was faltering, but that the slowdown was a blip and that GDP growth would be back in fine shape by 2009. Things have not turned out that way.
Last night on “60 Minutes”, Bernanke said that he thought the current recession would probably end late this year.
He hedged some by saying the banking system be would have to be repaired for real growth the take hold.
Bernanke and the Fed have not done a good job of calling either the recession or the rate at which inflation would effect the economy. The agency was probably slow in dropping rates. It may be that the downturn materialized so quickly that more timely policy action would not have meant much.
It is still baffling to understand how Bernanke can justify saying that the beginning of the recovery is just just two quarters away. Credit in the US is not just tight, it is nearly non-existent. Housing prices are still dropping, and any help from the government to keep worthy people in their homes by cutting mortgage payments will almost certainly not take hold for several months. Corporate earnings are in a shambles. Retail sales drop each month and large industries including the car and newspaper businesses may not survive in their current forms.
Bernanke may have gotten on TV and felt that he had to say something upbeat to build consumer and business confidence, But, almost everyone who heard him is concerned about losing a job, a home, a business, or the ability to educate a child.
As Jack Nicholson said in the film “As Good As It Gets”, “Sell crazy somewhere else, we’re all stocked up here.”
Douglas A. McIntyre
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