"Some of
these headwinds may be stronger and more
persistent than we thought..."
Spoke Ben Bernanke in his comments today after
presenting his latest take on the US economy. He
went on to say “We don’t have a precise read on
why this slower pace of growth is persisting.”
Sometimes I am astounded by the
comments from people in positions of power. I am
not sure if they are too close to a situation to
not be able to see it or if they fail to do any
research of any kind. It is truly dumbfounding.
Almost every lay person knows
the two main problems are unemployment and
housing. Sure there are a lot of other problems,
but there are always lots of problems. That is
the nature of an economy. However until
unemployment and housing improve there is no way
the economy can "boom". Therefore doesn't it
make sense that there is just anemic growth.
Still I suppose anemic is better than no growth.
Meanwhile the world is drowning in a sea of debt. If
Greece passes its austerity measures, it will basically
pay the interest on its debt - that's all. The debt will
remain. The US debt is so high that congress and/or the
President will have to act. The problem is 2012 is an
election year and no President will want to do anything
that could even remotely hurt a re-election. That means
nothing will happen until 2013.
Overall the global recovery from the credit crisis is
basically anemic at best. Japan started to see some
growth and then was struck by a massive earthquake and
tsunami. The effects of this event will be wide spread
for months if not more than a year or two. China has
been raising interest rates trying to cool their
economy. The Middle East has erupted as violence has
spread from country to country as protests against
decades of abuse by dictators and those in positions of
power gain momentum.
Meanwhile the Fed Chairman is unsure why the pace of
growth is slow? This pronouncement on the part of the
Federal Reserve truly defies logic. Right now the
unemployment rate in the US is probably closer to 12 or
15 percent and has remained pretty steady at this level
since the credit crisis. Despite everything the Fed has
done there has really been no change in unemployment,
and housing in general continues to decline. Yet the
trillions spent have certainly pushed prices of
commodities to the point where food costs are at the
highest level since the UN Food and Agriculture
Organization started monitoring food prices in 1990. The
World Bank estimates that recent food-price increases
have driven an additional 44 million people in
developing countries into poverty and that is just
developing countries! Millions are on food stamps in the
US alone. It is now estimated that 3 billion people or
almost half of the world's population are suffering from
chronic hunger. Meanwhile in developed nations, the
price of transportation and commuting to work is almost
prohibitive for an enormous number of families.
SUMMARY
When the credit crisis hit I commented that I felt it
could take decades for the economy of the US and other world
powers to recover. In the future when historians and
economists look at the credit crisis and the aftermath it
will be interesting to see if the quantitative easing and
all the bailouts actually contributed to not just inflation
but may be the cause of another recession, which may see the
rise of something worse than inflation - stagflation.
