Business Times - 08 Apr 2008
When Bernanke utters the 'R' word
'A recession is possible,' he told the somewhat hostile members of the Senate Joint Economic Committee last week
By LEON HADAR
YES. US Federal Reserve chairman Ben Bernanke actually used the word 'recession' during his Congressional testimony last week. He didn't say that the US economy was in a recession or that it was about to enter into a recession.
But he did tell the somewhat hostile members of the Senate Joint Economic Committee on Wednesday that 'a recession is possible', adding that the economy was apparently 'slightly growing at the moment but we think that there's a chance that for the first half as a whole, there might be a slight contraction'. And Mr Bernanke sounded a bit more explicit on the issue - without using the word 'recession' itself - when he told the senators that 'it now appears likely that real gross domestic product, or GDP, will not grow much, if at all, over the first half of 2008 and could even contract slightly'.
Most economists agreed that his prediction - that the American economy could contract in the first half of 2008 - did meet the technical definition of a recession. So it was not surprising that the media's headlines spun his address as an admission that recession was here to stay for a while:
'Bernanke warns of possible recession' (Yahoo News)
'Fed Chairman Hints of Possible Recession for First Time' (Fox Business)
'Bernanke Nods at Possibility of a Recession' (The New York Times)
'Bernanke sees recession risk' (CNN Money)
'It Might be a Recession, Fed Chief Tells Congress' (The Washington Post)
'Bernanke Says the Word: 'Recession' May be Near' (The Wall Street Journal).
But the exercise in semantics didn't seem to make much of an impact on Capitol Hill and on America's consumers and businesses.
When the price of oil, bread and eggs are skyrocketing; when you or someone you know cannot make their payment on their mortgage or credit card; when your pension plan is losing its value; and when you cut on your spending and start for the first time in many years to save; you don't have to wait for the Fed chief to tell you that it's official. The American economy is in a recession. Hence an opinion poll, conducted by The New York Times and CBS News and released on Friday, reflected the devastating impact of the recession on the American people/consumers/ voters.
Of those polled, 81 per cent said that they believed that things were 'pretty seriously' on the 'wrong track', up from 69 per cent a year ago and 35 per cent in 2002.
According to the Times, the results suggest that Americans were more dissatisfied with the country's direction at any time since The New York Times/CBS News poll began asking about the subject in the early 1990s. As if to provide an illustration of the depressing mood in Washington, the photograph placed next to the Times' front-page story on the darkening sentiment of the American people was that of glum and exhausted US economic officials, including Mr Bernanke reporting to Congress on Thursday about the federal government's bailout of Bear Stearns.
Interestingly enough, the Times poll indicated that a large majority doesn't want the federal government to assist financial institutions such as Bear Stearns, even if such a move could help contain the impact of the financial crisis.
Instead, reflecting the growing populist mood around the country, more Americans want Washington to help Main Street - not Wall Street - providing help to those homeowners who are in danger of losing their house.
And there seems to be continuing concern over the impact of globalisation on the American economy, with close to 60 per cent of Americans supporting more restrictions on international trade.
Making a bleak economy look even bleaker, figures issued by the US government last week indicated that employers cut payrolls for a third consecutive month in March and that the jobless rate jumped to a two-and-a-half year high.
According to the Labor Department, non-farm employment fell by 80,000 jobs in March, the biggest decline in five years. The department also said that a combined 152,000 jobs were lost in January and February, compared with a previous estimate of 85,000. Overall, the unemployment rate jumped to 5.1 per cent from 4.8 per cent, the highest since September 2005.
Mr Bernanke told lawmakers that the US central bank expected economic activity to strengthen in the second half of the year, mostly as the result of 'simulative monetary and fiscal policies', including the continuing interest rate cuts by the Fed and the economic stimulus package approved by Congress.
But he clearly seemed to anger some of the lawmakers when he insisted several time during his testimony that 'it is up to Congress to decide' when it comes to measures dealing with repercussions of the sub-prime crisis.
'You mean to tell us you don't have answers?' asked Democratic Senator Ted Kennedy of Massachusetts. 'No, sir,' Mr Bernanke replied.
One reason that Mr Kennedy and other leading Democrats, including presidential candidates Hillary Clinton and Barrack Obama, are worried is that they are aware that against the backdrop of the growing economic pain experienced by members of the struggling American middle class, it's soon going to become very difficult for them to support continuing government bailouts of major financial institutions.
The Democrats recognise that such moves are necessary in order to pre-empt a panic among investors on Wall Street that could deepen the recession. But as political players in what could become a historic presidential and Congressional election campaign, they have no other choice but to bash the Bush administration's response to the financial crisis and exploit the populist sentiment.
Adding to the sense of despair, among both Democrats and Republicans in Washington, is what seems to be the failure of President George W Bush to play an active role in dealing with the economic crisis. Indeed, while Mr Bernanke and Treasury Secretary Henry Paulson were focusing the attention of Congress and the public on their proposals to reshape US financial policies, President Bush was spending time in the Nato summit in Bucharest, Romania, pushing forward his plan to bring the former Soviet republic of Georgia into the Cold War-era military alliance.
Most Americans would have probably preferred to him to come up with some ideas aimed at improving the economic conditions in Georgia, USA.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
also checkout my post on @TAC:
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Time to Shut Down Nato?
McCain Distnacing Himself from Bush: Reality Check.