Bernanke signals Fed is ready to prop up U.S. economy
Following up on my comments yesterday, it looks like inflation is going to be the route to try and bring a recovery. The Federal Reserve and Ben Bernanke will fail in this attempt because at the end of the day, income (wages) will not keep prices and real growth where it is needed to stop deflation.
The recovery is basically over when we are getting statements like this from our central bank chairman. It can become really dangerous when the Fed create uncertainty by talking about purchasing long term treasuries. The gold market has sniffed this out and the price is almost nears its nominal high of $1,253.00 per ounce.
The more these type of discussions keep coming up, the more it shows that the Fed and Treasury so not have a handle on the macro-economic situation and the market is what is really dictating our conditions. Bernanke said that deflation is not a risk to the economy but he is wrong, to him this is the biggest risk and that is why he is continuing the program of Quantitative Easing (QE aka: money printing).
Ask yourself this question, do you fight inflation with inflation or do you fight deflation with inflation?
Popularity: 1%
Fed chairman says ‘unemployment will remain stubbornly high for several years’
Well you have it from the proverbial horses mouth in Ben Bernanke, our Federal Reserve Chairman. It does not bode well for the U.S. economy when the head of our central bank tells us that we should expect high unemployment for the next several years. On a political note, that is going to make this election cycle and the 2012 presidential election far from certain.
When the economy is going south, it makes it easier for a new candidate to make promises of a better economic environment even if they can not deliver. Bernanke said we will still be between 7-7.5% in 2012 for our percentage of unemployed population. We also need to take account for discouraged workers that will also come back on the rolls and possible push that statistic even higher.
This is also a best case senario, we need to take into account that a double-dip recession is not out of the cards either. I have to tip my hat to Ben for atleast giving us a realistic picture and not telling us our economy through rose colored glasses.
Popularity: 1%
Federal Reserve Maintains Zero Percent Interest Rates For Extended Period
With no surprise, the Fed after their two day interest rate policy meeting continues to maintain short term interest rates at near zero and they maintained the “for an extended period” statement in there. At this point they have not given the market any clue that they are starting an interest rate hike cycle.
This continues to tell us that even with the large rally in the equity markets, we are not out of the neck of the woods and things are still holding together by a string. The New York Times article discusses the same important topic I have mentioned about the massive balance-sheet the Federal Reserve has at the moment that is filled with many mortgage related securities and so-called toxic assets.
With the position our banking system is in, they are in no place to purchase back the over $1 trillion dollars in assets they are holding on their books. Until we can deal with those assets in a transparent manner, we can not say that we have a real recovery in our financial system. If they aren’t dealt with then they have essentially been off-loaded to the public and that would be a tragedy having to deal with the inflation associated with that because the banks would have all that extra cash to lend with.
New York Times - The Federal Reserve on Wednesday kept short-term interest rates near zero and maintained, as it has for nearly a year, that rates would stay at that level for “an extended period.”
Despite intense market speculation, the central bank disclosed nothing about the fate of the $2.3 trillion balance sheet it accumulated as it acquired mortgage-backed securities in an effort to prop up the housing market.
The Fed reiterated its expectation that the benchmark fed funds rate would remain “exceptionally low,” as it has since December 2008, for some time, despite growing concerns among policy makers that the stance was too constraining.
Popularity: 1%
33 states out of money to fund unemployment benefits
In my opinion on readings on different financial crises, this might be the first sign of how we are going to see a bout of high inflation. We are looking at about 5 years of high unemployment, at the current pace if we can create 250,000 jobs per month which we have only done once and that was during th go-go 90′s before the dot com bubble bursting.
If we look at the $38.7 billion borrowed so far to shore it up, that could turn into hundreds of billions of dollars between now and 2015. This along with healthcare and a rising federal deficit equals a large amount of new debt that will be issued to cover those expenditures. That means more Federal Reserve Notes (U.S. Dollars) in the system and without productive gains at the same time, will equals increased inflation which will make this bad situation a nightmare.
Most economist are talking about the low to zero threat of high inflation. Whenever we have such a strong consensus, it is wise to really look at the alternative outcome.
CNN - With unemployment still at a severe high, a majority of states have drained their jobless benefit funds, forcing them to borrow billions from the federal government to help out-of-work Americans.
A total of 33 states and the Virgin Islands have depleted their funds and borrowed more than $38.7 billion to provide a safety net, according to a report released Thursday by the National Employment Law Project. Four others are at the brink of insolvency.
Popularity: 1%
U.S. Consumer Spending Increases 0.5%
This is a sign people are feeling a little bit more confident. Not only did consumer spending rise, but the savings rate when down at the same time. Overall we need to increasing savings and investments in the United States and get our federal and state budgets in order. Too long we have relied on borrowed money and consumer spending to fund our GDP. Regardless, this news is a good sign and if we see jobs started to be created then we will be going in the right direction again.
Wall St. Journal - Americans spent more in January than expected but growth of their income was weak, while a gauge of inflationary pressure within the slowly recovering economy rose at a slower rate.Separately, the expansion at U.S. manufacturing firms softened in February but remained very broad based, according to the Institute of Supply Management’s survey released Monday.
Popularity: 1%
Jobless rate falls to 9.7 percent in January – its due to discouraged workers not true gains
This news does sound good on the outside but when you read into the report you find that we still shed 86,000 jobs after you add in the gains. Also and this is the biggie, the drop to 9.7% is because people simply gave up looking for work and fell off the unemployed rolls and are just not being counted. If you look at the U6 number in the report, you will see the “discouraged” works and unemployed together and that gives a much more accurate picture. The U6 number is well over 15% and that is a pretty big number. The stock market slid under 10,000 and we could be in for a major correction going forward. I’ll keep you posted.
Reuters, New York - KEY POINTS:
* The Labor Department said the economy shed 150,000 jobs in December, compared to 85,000 previously reported, but November was revised to a gain of 64,000, up from 4,000. Annual benchmark revisions to payrolls data showed the economy has purged 8.4 million jobs since the start of the recession in December 2007.
* Analysts polled by Reuters had forecast payrolls gaining 5,000 and the unemployment rate to edge up to 10.1 percent. Median estimates from the top 20 forecasters expected payrolls to be unchanged last month.
* A sharp increase in the number of people giving up looking for work helped to depress the jobless rate. The number of ‘discouraged job seekers’ rose to 1.1 million in January from 734,000 a year ago.
Popularity: 1%
U.S. GDP & economy grows at 5.7% but can it keep up?
It sounds like a robust number but when you look what it is compromised of, 3.4% of it is from inventory restocking from the holidays, not growth in spending. According to the article, the major impact of inventory rebuilding is a red flag for numbers going forward. The market has priced some real recovery in 2010 and it might not happen so we could see another leg down in the economy. We will be watching the next 2 quarters closely and if it doesn’t not support the recovery, we will have a choppy September and October.
Forbes - The U.S. economy crushed expectations by growing at a 5.7% clip in the fourth quarter of 2009, but even as Wall Street rallied on the news there are plenty of warning signs of a slower pace ahead.
Popularity: 1%