From Federal Reserve Chairman Ben Bernanke this afternoon summarizing the outlook for the U.S. economy:

Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.

Specific concerns: “the very high level of long-term unemployment” and “loss of momentum in the labor market,” the “depressed state of housing,” and “additional headwinds ranging from the effects of the Japanese disaster to global pressures in commodity markets.”
The U.S. Economic Outlook [federalreserve.gov]

Comments from Plugged-In Readers

  1. Posted by ex SF-er

    There is so much irritating here I don’t even know where to start
    This is just Bernanke trying to “talk up” the market since all he cares about are stock performance and bank bonuses. Expect more whining from the Fed Doves as they float test balloons about QE3.
    there has been no “recovery” for most of America. Instead, we had a Fed-induced echo bubble in stocks and commodities due to a flood of liquidity from QE1 and QE2. this liquidity of course was centered on stocks, commodities, the top 5-10% of income earners, and also NY and DC, with only the tiniest of trickle out to other areas.
    Unsurprisingly, the echo bubble in stocks/commodities is faltering now that QE2 is set to expire. it was COMPLETELY obvious and foreseeable to anybody except our Financial “elite” and our Government “leaders”. (Even I, an unconnected peon in the midwest predicted this downturn back in Jan/Feb, my so-called “Seldon moment”)
    The downturn in stocks (and I wish we could stop confusing STOCK performance with our ECONOMY) will continue as the end of QE2 gets nearer. The Fed of course will fold eventually and give us QE3. it may be before QE2 runs out, or perhaps they’ll try to wait it out a few months, who can say? they’ll probably name it something else besides QE3 to obscure it to the masses, but QE3 it will be. The QE3 will give another quick shot to stocks but it will be not as vigorous as what QE1 and QE2 did (that’s the nature of a junkie).
    This talk, which is clearly of F- quality, is clearly only the opening plea for the next round of Quantitative Easing. See, we’re TRAPPED in it now (“I think we’re turning Japanese!”). there is, and never was an exit strategy, except “hope” that the economy will somehow improve organically allowing the Fed to sell out of its position.
    but how can an economy grow organically when you smother any recovery in its crib by allowing the Too Big to Fail Zombies to extract all the productivity from the populace??? how can an economy grow when you enact policies that are hostile to working class Americans? how can an economy grow organically when you waste money in futile wars? how can an economy grow when you overtly attack the wages of working class people AND of the public sector? how can an economy grow when you raise the cost of living on average people? the answer: you can’t.
    it has been several years now, and STILL we have done little to nothing to help the structural problems in our economy. Instead, we have papered over problems and given ENORMOUS financial gifts to the banks. I forget, how many record bonuses have the bankers gotten since the downturn now??? and what exactly are they doing to get this money? Oh yes… they are borrowing from OUR government at 0.1 to 0.2% (the Fed Funds Rate) and then lending it back to the SAME government at 3% (Treasuries). Genius.
    how about this; why not let common working people borrow from the Fed at 0% and then lend it to our government at 3%???? Oh, no, we can’t have that…. see that would be SOCIALISM and a HAND OUT and WELFARE. eek! run! No, we must give it to Loyd Blankfein so he can do “god’s work” like cheat his customers and lie to our Congress.
    unfortunately, we as a society have an incredible amount of pain yet to go with this recession.

  2. Posted by tipster

    Excellent analysis ex SF-er, but you are missing the political part of the equation.
    1. The average voter has an IQ of 100 and doesn’t understand a word of what you just said. His or her mood is more influenced by the local baseball team or the gossip magazines than anything that might affect him or her economically, because he understands the first and not the second.
    2. The average politician understands #1 very, very well.
    3. The average politician needs a) campaign money; and b) a landing spot in his back pocket should voter backlash against one party or the other send him or her out of a job through no fault of his or her own (or due to a “hacker” sending graphic pictures of yourself to women half your age).
    4. Bankers and rich people supply 3a and 3b.
    The politicians goal is not to improve the economy (because most people think it is beyond their control), it is to get 50.00001% of the vote and get 3a and 3b along the way.
    Thus, Gavin Newsom sells gay people a worthless piece of paper with the words “marriage certificate”, charges them for it, and wins a second reelection campaign because of that. What happened to the economy was irrelevant. Do you think the other politicians didn’t see that?
    Thus, you cannot fight what is going on, you can only try to adapt to it if possible. For example, do you see the real estate market appearing to stabilize as the QE money flows out of stocks and into people’s pockets? You adapt by realizing that such a situation is temporary; and by not being stupid enough to buy real estate with the expectation that the situation will last, when the underlying problems have not been fixed. Let other people buy during those temporary peaks.

  3. Posted by anon

    You guys are a hoot. So you don’t believe the Fed Chairman when he says things are getting better? The person in charge of the U.S. economy?? You probably didn’t believe the NAR either when they said there was no housing bubble. Oh wait…

  4. Posted by lol

    You guys are so depressing.
    The emerging world is doing pretty well so far while the developed world is still stagnant. Our main issue is that we are fully built, fully equipped. We could improve what’s there, but no-one wants to pay for it. The only edge we have left is innovation and exporting of such innovation to the outside. SF is at the forefront of that. RE is expensive partly because of that.
    I guess the current low morale reflects some kind of middle-age country pullback. We are less and less the center of the world. We are aging. Our reactions are typical of people in their 50s who see things changing without them. The neighborhood is changing, that cannot be good. Let’s pull back and crawl back until this goes away…
    About QE(n), it’s pretty simple. People have expressed their opinion in Nov 2010 they wanted to pull back from all this globalization thingy that looks so un-american and symbolized by a president who has 1/2 his roots in another continent. With a limited mandate, Obama and Bernanke and others who have very limited tools to help the economy. They are trying to save the patient against his own will. Cheap money, bubbly stock market, sure. Printing money only goes so far without triggering negative consequences. But what about forward looking investments? People voted no.
    Everyone wants good roads but not the taxes that go with them. It’s in the genes since this Reaganomics idiocy.
    We should cancel the Bush tax cuts. We were doing great in the 90s! Use 1/2 the proceeds to reduce the deficit. Use the other 1/2 to replace our crumbling infrastructure and move ahead on forward-looking projects that will bring tomorrow’s growth. That’s how America always does it.
    But “small government” people do not want that. They always want more tax cuts, more service cuts. Cutting their own legs and whining they can’t walk and being depressed about it. Typical middle-aged guy rant.

  5. Posted by tc_sf

    “The emerging world is doing pretty well so far while the developed world is still stagnant.”
    I’d disagree a bit here. The commercialization of the internet in the last decade has been mostly US based and has been a significant force throughout the entire economy, not just the technology industry.
    I think the issue is that the correlation between economic development and the fruits of this development is not as tight as you might assume. As pointed out above though, the performance of the stock market may not be tightly correlated with economic development. Also, SF was a hub of the tech boom yet real median income has been stagnant for over a decade.
    Looking at the historical development of things like electricity and the railroads, I’m not sure that the recent lake of correlation is atypical. There can be irrational valuations during the rise of new technologies which cause capital misallocation, dead weight losses as some businesses (and people get caught by the inevitable valuation collapses) . Even when things settle down, some productivity gains are distributed to the users of the new technology, but in many cases the productivity gains accrue from allowing fewer workers to do the same amount of work. For a firm to realize these gains, some workers need to be removed for their current job. If they are laid off, the company will realize the “gain” immediately, but the economy as a whole won’t get the full gain until the displaced find other useful functions.
    Even looking at the housing bubble, housing is a useful thing to produce. There was no issue with our housing production, the issues were valuation and oversupply.

  6. Posted by lol

    tc_sf,
    interesting comments.
    1 – US stock market has a lot to do with international growth. If the Euro goes up 5% many traded US companies will see a technical growth of 1 or 2% of their sales. Likewise, companies doing business in China will also profit from the never ending 9-10% growth they have enjoyed. This world is so globalized, US companies could be lingering at home but still thriving overall because they are well positioned.
    2 – I do agree somehow with the bubble/bust gains. But it’s not all about cutting people off. For instance take Global Crossing. They built a fantastic backbone that was sold for nothing when everything collapsed. Now we are all enjoying almost free communication. I can (and do) work from anywhere in the world with clients in UK, SF, NY using the cheap pipes. I do almost free conference calls and chats through Skype that would have cost me 1000 times more in 1995. My gains in productivity are tremendous and my company can grow because of the ease to reach customers anywhere. I am sure the returns on the infrastructure spent to built GC’s pipes are huge. Not for the investors, but for everyone in the position to profit for it.

  7. Posted by Rillion

    Tipster: “Thus, Gavin Newsom sells gay people a worthless piece of paper with the words “marriage certificate”, charges them for it,”
    You have harped (wrongly) on this before and I have pointed out your error, yet you continue to spout off (wrongly) about it. Anyone that was issued a marriage certificate during that time that was invalidated had only to request a refund from the city to get their fees back.

  8. Posted by tipster

    Rillion, even if he gave them away, he got tons of votes for accomplishing nothing.
    It’s like the republican congressmen who voted to oppose increasing the debt ceiling only to go back and negotiate an actual increase. It was all done for show – a free way of getting votes while accomplishing absolutely nothing.
    The American people are too stupid to see it for what it really is.

  9. Posted by tc_sf

    @lol —
    Re: 1, I’d agree with you here that the US stock indices aren’t as good proxies for the fruits of the US economy as they used to be. To be accurate here you’d probably have to do something like create a synthetic index composed of stock prices pro-rated to domestic activity. In practice this would be complicated by the use of the technical offshoring simply for tax purposes (Double Irish, Dutch Sandwich,…)
    Regarding exchange rates though, I’d guess that they would be more noise like averaged over a longer period.
    Re 2: Your Global Crossing example looks like a good microcosm for the larger picture technology cycle. But in the case of Global Crossing as you point out, the post bust excess fiber supply was quickly put to productive use. For the larger economy the excess supply of “human capital” and housing takes longer and presents more challenges to repurpose to productive use.
    It’s great that you have enjoyed the fruits of recent technological advancement and I’m sure that there are many others like you. But with a ~$14 Trillion US GDP, moving the needle on domestic growth requires very broad based changes. Additionally, while you appear to be positioned to use recent communication technology to increase your productivity via the “top line” (i.e. doing more and more lucrative work), I think that a large chunk of work will be made more productive by being moved to lower cost areas (Not simply offshoring, even domestic relocation to lower cost areas). Given the relatively homogenous culture and large land area of the US, I think we are well positioned for this. But this is obviously a very disruptive process and the housing bubble disrupted this by raising prices in even far flung areas.

  10. Posted by lol

    tc_sf,
    The dollar is still showing sizable weakness and there’s more room from growth there, especially with China slowly and gradually re-evaluating their currency towards the right rate.
    Also, I know a few people who have offshored themselves to cheaper and sunnier locales. One of them has lived in a coastal town 10 off-season months a year in Spain for now 12 years. At first he used to fly to London to meet customers once a month. Now he’s doing everything remotely, even business meetings. The B@st@rd does coding next to his swimming pool. Globalization is not all bad…

  11. Posted by Rillion

    Tipster – It didn’t accomplish nothing, it kicked off the legal battle that ended with the CA Supreme Court eventually agreeing with SF that the marriage law was unconstitutional. That ruling was eventually overturned by Prop 8. So while the 2004 marriages were invalidated, the whole thing was not meaningless and did not in your words “accomplishing absolutely nothing”. I know several couples that took part in this and they do not believe that it accomplished absolutely nothing.

  12. Posted by Mole Man

    We built exurbs out beyond the reach of jobs, and these places are now becoming slums or being abandoned. Housing is not generally useful. This bubble really did distort the nature of the market at all levels.

  13. Posted by tc_sf

    “Housing is not generally useful.”
    Not every dot com company provided a useful function and not every piece of excess housing supply will be occupied. But I think that both internet commerce and housing are generally useful.
    Even exurban housing, as above people can telecommute, people can go there to retire, companies can move there to get cheep housing. It won’t be 100%, nor quick, nor easy,

Add a Comment

Your email address will not be published. Required fields are marked *

Recent Articles