View Full Version : Fed chief Bernanke: recession could end in '09
The source is here (http://news.yahoo.com/s/ap/20090315/ap_on_bi_ge/bernanke60_minutes/print).
Fed chief Bernanke: recession could end in '09
By JEANNINE AVERSA, AP Economics
WASHINGTON – America's recession "probably" will end this year if the government succeeds in bolstering the banking system, Federal Reserve Chairman Ben Bernanke said Sunday in a rare television interview.
In carefully hedged remarks in a taped interview with CBS' "60 Minutes," Bernanke seemed to express a bit more optimism that this could be done.
Still, Bernanke stressed — as he did to Congress last month — that the prospects for the recession ending this year and a recovery taking root next year hinge on a difficult task: getting banks to lend more freely again and getting the financial markets to work more normally.
"We've seen some progress in the financial markets, absolutely," Bernanke said. "But until we get that stabilized and working normally, we're not going to see recovery.
"But we do have a plan. We're working on it. And, I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year."
Even if the recession, which began in December 2007, ends this year, the unemployment rate will keep climbing past the current quarter-century high of 8.1 percent, Bernanke said.
A growing number of economists think the jobless rate will hit 10 percent by the end of this year.
Asked about the biggest potential dangers now, Bernanke suggested a lack of "political will" to solve the financial crisis.
He said, though, that the United States has averted the risk of plunging into a depression.
"I think we've gotten past that," he said.
It's rare for a sitting Fed chief to grant an interview, whether for broadcast or print. Bernanke said he chose to do so because it's an "extraordinary time" for the country, and it gave him a chance to speak directly to the American public. (A transcript of the interview was provided in advance of the broadcast.)
Bernanke spoke at a time of rising public anger over financial bailouts using taxpayer money. Battling the worst financial crisis since the 1930s, the government has put hundreds of billions of those dollars at risk to prop up troubled institutions and stabilize the banking system.
Institutions that have been thrown lifelines include American International Group Inc., Citigroup Inc., Bank of America Corp., mortgage giants Fannie Mae and Freddie Mac and others.
Democrats and Republicans on Capitol Hill have questioned the effectiveness of the rescue efforts and have demanded more information about how taxpayers' money is being used.
Bernanke's TV interview seemed to be part of a government public relations offensive. Treasury Secretary Timothy Geithner appeared on PBS' "The Charlie Rose Show" last week, discussing the financial crisis and the Obama's administration's relief efforts.
The Fed chief on Sunday's broadcast repeated his ire over the AIG bailout, saying that over the past 18 months, that was the case that angered him the most. He says he "slammed the phone more than a few times on discussing AIG."
The government's four efforts to save the troubled insurance giant total more than $170 billion. A collapse of AIG would have wreaked havoc on the global economy, the Fed has said.
AIG ignited fresh outrage over the weekend with news that it's making $165 million in bonus payments to executives on Sunday, most of them in the unit that sold risky financial contracts that caused huge losses for AIG.
When the financial crisis intensified last fall, Bernanke and President George W. Bush's Treasury Secretary Henry Paulson rushed to Capitol Hill for help. That led to the swift enactment of a $700 billion bailout package in October. Since then, banks have received billions in capital injections in return for government ownership stakes in them.
Looking back, Bernanke said the world came close to a financial meltdown. Asked how close, Bernanke responded: "It was very close."
Bernanke admitted that the Fed could have done a better job of overseeing banks. Critics say lax regulatory oversight contributed to the crisis.
Bernanke said he believes all the big banks the Fed regulates are solvent. Big banks won't fail under his watch, Bernanke said — though, if necessary, the government should try to "wind it down in a safe way."
Although my faith in Mr. Bernanke is not high, I do see some signs of economic stabilization. They are tentative at best, and do NOT suggest imminent recovery of the economy or the stock market. They do hint at the possibility that things will stabilize for a time.
First, the Barron's bond confidence index is holding its own. This week is = 58.4, last week = 57.3, 1 year ago = 71.6. Higher is better, and we have a way to go.
Second, the Baltic Dry Index is getting stronger. It is one measure of global trade activity. Take a look HERE (http://stockcharts.com/h-sc/ui?s=$BDI&p=D&yr=3&mn=0&dy=0&id=p99948292165&a=143204478)
Third, copper seems to be bottoming. In fact, from a short term (daily) perspective, it is in an uptrend - although it has a long way to go to recover. LINK (http://stockcharts.com/h-sc/ui?s=$COPPER&p=D&yr=3&mn=6&dy=0&id=p51557353036&a=163281228)
My scenario - some technical stabilization in the economy by 4th qtr 2009 or 1st quarter 2010. Stabilization means a few little hints that things are better, but no substantial improvement in employment or business activity. We may see some improvement in 2010, but it will be slow going.
:munchin
CoLawman
03-15-2009, 21:29
I see this as an attempt at changing American's attitudes. Bernanke is just trying to undo the damage that BO did by crying the sky is falling. This is long overdue. I would prefer they at least "sound" optimistic. Their pessimism has certainly added to the problems! My two cents worth, which is about all I am worth currently! But it is only a paper worth!
I guess I'm more concerned when they start with optimistic talk. There are far too many organizations that swear up and down that they are in great financial condition - one week before they fail.
GE promised they wouldn't cut their dividend. They fibbed.
The Reaper
03-16-2009, 12:13
I see this as an attempt at changing American's attitudes. Bernanke is just trying to undo the damage that BO did by crying the sky is falling. This is long overdue. I would prefer they at least "sound" optimistic. Their pessimism has certainly added to the problems! My two cents worth, which is about all I am worth currently! But it is only a paper worth!
Concur.
And the MSM, who whined and bitched about the economy throughout the Bush Adminstration's tenure, is now trying to make a silk purse from a sow's ear, essentially having helped to talk us into a recession.
"These are not the droids that you are looking for".
TR
The Trainer
03-16-2009, 17:01
We are in a downward spiral, which you all know, that began back in 1971 when Nixion took the US dollar off the gold standard. The news is finally making it to the masses.
Read Robert Kiyosaki's conspiracyoftherich.com it is laying this mess out in detail.
I see this as an attempt at changing American's attitudes. Bernanke is just trying to undo the damage that BO did by crying the sky is falling. This is long overdue. I would prefer they at least "sound" optimistic. Their pessimism has certainly added to the problems! My two cents worth, which is about all I am worth currently! But it is only a paper worth!
I agree, the "critical crisis" going catastrophic...yeah ok. Could it get worse? Sure. Do we need a President with rose colored glasses? No. But don't use fear mongering to pass those trillion dollar bills that our children's children will be paying off.
The whole sky is falling perpetuated by the media, as TR pointed out, was just over the top.
There are far too many organizations that swear up and down that they are in great financial condition - one week before they fail.
No...they would do something like that?
http://www.marketwatch.com/news/story/Foreign-debt-sales-raise-doubts/story.aspx?guid=%7B74B72564%2D4864%2D4785%2D92FC%2 D4073ACB0C024%7D
If we print the money what happens if nobody buys the securities?
Interesting article on sales of our securities.
I cannot help wondering about strong statements from organizational leaders - at just about any level. I recall President Ford and his Whip Inflation Now buttons. Those didn't do much good.
When was the last time anyone made a point of saying that China had plenty of people to staff its factories? I haven't heard it - because no one needs to say it. It is clearly true. Now, let's contrast this with any number of corporate entities. Generally, when they start telling anyone who will listen how strong they are, the next step is generally the opposite. They speak to counteract rumors - rumors that are, in fact, true.
In the case of the U.S., we have generated a great deal of debt. Whereas the cost to insure U.S. treasury debt was trivial, it has increased eight-fold from June 2008 to January 2009. And this isn't just Nmap saying so - this is from the St. Louis branch of the Federal Reserve. LINK (http://www.google.com/url?sa=t&source=web&ct=res&cd=1&url=http%3A%2F%2Fresearch.stlouisfed.org%2Fpublica tions%2Fes%2F09%2FES0908.pdf&ei=Rd6-Sf7EBp_WygWc0p2JBg&usg=AFQjCNG6_D_kXul3eQbGTlAy2ENyx-Bk_A&sig2=fbEMwLzdHqlprs2uWCwreA)
Worse still, the cost to insure U.S. debt against default has increased more than either Germany or Japan.
Let us suppose a debtor came to any of us. We know they owe a lot. We know they want to borrow more. Will we lend to them?
More pointedly, will China keep loaning to us as we borrow trillions? And if they don't, what then? Perhaps a train wreck that will make the great depression look insignificant, as we are compelled to live within our means.
It may be that the POTUS is using the "bully pulpit" of the presidency to encourage confidence and recovery. Nonetheless, I suspect he is trying to persuade the world to continue lending us money. And unless we seek a character building experience, we might want him to succeed.
From CNBC: LINK (http://www.cnbc.com/id/29720589/site/14081545)
CNBC.com | 17 Mar 2009 | 05:49 AM ET
The Federal Reserve has no option but to start buying Treasurys as the government's needs for financing are huge, but the government bond market is a disaster in the making, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, told CNBC.
Federal Reserve policymakers start a two-day meeting on Tuesday, weighing options on how to spur lending to help cash-strapped consumers kickstart the economy.
Economists expect them to leave rates at zero and look to other ways of boosting liquidity, such as buying government bonds – a measure which has already been taken by the Bank of England.
"Well I think other central banks have done it already around the world but basically what it amounts to is money printing and in fact I don't think that it will help the bond market at all in the long run," Faber told CNBC's Martin Soong.
The yield on the 30-year Treasurys touched a low of 2.51 percent last year in December but now it is back up at 3.77 percent, he said.
"Yields have already backed up pretty substantially and I tell you, I think the US government bond market is a disaster waiting to happen for the simple reason that the requirements of the government to cover its fiscal deficit will be very, very high," Faber said.
"The Federal Reserve will have to buy Treasurys, otherwise yields will go up substantially," he said, adding that as their reserves were dwindling, foreign investors were likely to scale down their purchases.
But there will be a time when the Federal Reserve will have to increase interest rates to fight inflation, and it will be reluctant to do so because the cost of servicing government debt will rise substantially.
"So we'll go into high inflation rates one day," Faber said.
The stock market is likely to continue its bounce at least for a while, but the outlook is bleak, he added.
"I think we may still have a rally (in the S&P) until about the end of April and probably then a total collapse in the second half of the year sometimes, when it becomes clear that the economy is a total disaster," Faber said.
frostfire
03-19-2009, 18:25
We are in a downward spiral, which you all know, that began back in 1971 when Nixion took the US dollar off the gold standard. The news is finally making it to the masses.
Read Robert Kiyosaki's conspiracyoftherich.com it is laying this mess out in detail.
Trainer, thank you for the link. I was not highly aware of that detail before. That book almost read like a horror novel.
I wonder though:
- Does/will the author define "rich." Who are "the rich" repeatedly referred to? Better yet, what qualifies one as "rich." The author is a millionaire, is he rich? Donald Trump, his previous books' coauthor and a billionaire, is he part of "the rich" ?
- So aristocracy and peasant still exist, albeit in a more subtle form such as the use of public education to produce good worker that doesn't question much. Well, I can think of what I'd do or gain from billions of $, but is there anything fundamentally/philosophicaly/moraly/emotionally/intellectually wrong with living as peasants, earing an honest wage, perhaps raising a family, then dying with peace, contentment, and dignity?
Maybe I'm just a cynic. I'm still attempting to deduce what could possibly be an ulterior motive from writing the book. I have yet to buy the philanthropic explanation with the book being available online and so on.
6.8SPC_DUMP
03-19-2009, 20:21
IMHO we are in bad shape as an economy and it is not a short-term problem. I base this on decreased productivity, high over head, increasingly deep debt and the expense involved with ageing baby boomers.
What concerns me about the Federal Reserve System is privatized members of the Fed are the creditors to banks and financial institutions that are being bailed out. IMHO there is an inherent conflict of interest for the Fed advocating to bailing out these institutions; they stand to lose a great deal of money in private Fed stock if the banks can not repay them.
Fed. Chairman Bernanke recently said (paraphrased):
- “no banks will be allowed to fail" (1)
- “bailouts of these institutions are NOT coming from tax payer dollars” (1)
- “money given to banks can not be publicly itemized because banks will then refuse the money” (2)
- “it is the Treasuries’ responsibility to answer questions about banking interest rates – NOT the Fed- because the Fed doesn’t lend to damaged institutions” (2)
(1) “60 Minutes” interview http://www.youtube.com/watch?v=894X9_CU-QQ
(2) Senate Budget Committee Hearing 3/3/09 http://www.youtube.com/watch?v=kyl8c91qPbw&eurl=http://actionsbyt.blogspot.com/2009_03_01_archive.html
The inaccuracy of these comments has me very skeptical the Fed is acting in the best interest of average American citizens and even the country as a whole.
The primary functions of the Fed are listed below and they have failed miserably:
http://www.frbsf.org/federalreserve/
• Conducting the nation’s monetary policy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
• Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system
• Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
• Providing financial services to depository institutions, the U.S. government, and foreign official institutions
People keep talking about the huge loss of world-wide wealth - but they fail to realize that wealth does not disappear; it just changes hands. Every “reserve note” (dollar) produced by a countries’ Central Bank has an inherited percentage of debt tied to cashing in that dollar for “real money”. This debt is held by all who use that currency and is owed to those who are the private holders of Central Bank shares (Member Banks in the case of the Fed).
When any bank creates a loan, they are literally creating money out of thin air, with the expectation that the person being loaned money will repay it. In the process that bank also takes a loan from the private share holders of its countries’ Central Bank - who charge an interest rate as well (6% is normally the Fed’s). The difference in interest rates, between what a bank gets from the Central Bank and what it charges you, is its profit.
The ability for you to get a loan is supposed to be based on the requirements, deemed necessary by your bank, so they feel comfortable that they will get repaid. One would hope same would go for the Central Bank when loaning to the bank that is loaning to you (particularly when there is not over site on their ability to do so).
So what happens when a bank uses loans from the Central Bank to give loans to people who are not qualified to repay them? That bank loses the difference; i.e. makes a bad investment.
What happens when a bank misleads its clients with low introductory interest rates (falsely insinuating that they can refinance the loan after the introductory rate ends with out putting it in writing) which results in failure to pay from enough of their clients that the bank goes bankrupt? The Central Bank of that country would take the hit and lose money on their investment.
What happens when so many of these financial institutions pull this shit and go bankrupt that the Central Bank can’t cover its losses? They would either fail themselves or have more debt created for you and me from relying on loans from the Central Banks of other countries.
"President Woodrow Wilson signed the Federal Reserve Act on Dec. 23, 1913, creating a seven-member board of governors, including the Fed chairman, and 12 regional banks — a structure collectively known as the Federal Reserve System. The governors are appointed by the president and approved by Congress; the regional bank presidents are selected by leaders of their communities, particularly bankers."
http://topics.nytimes.com/topics/reference/timestopics/organizations/f/federal_reserve_system/index.html
This debt based system depends on revenues to survive - just like any other private business. Its share holders profit just like any other private business.
Since we gave those who determine the interest rate of our currency, the ability to create additional currency, is it any surprise they are fucking us in the ass by creating more outstanding debt to pay off their business mismanagement and survive as a profit oriented Private Corporation? All we have to show for it is complaining elected officials asking the Fed what is going on and Presidents who the support system.
Thomas Jefferson warned of exactly this.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations which grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”
Benjamin Franklin’s reflection on the Revolutionary War speaks volumes to me.
“The colonies would gladly have borne the tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the PRIME reason for the Revolutionary War.”
I agree with Ron Paul’s (R-TX) stance on the Fed, but hope to learn more.
"Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.”
People keep talking about the huge loss of world-wide wealth - but they fail to realize that wealth does not disappear; it just changes hands.
If I may be permitted a quibble...
In the case of a zero-sum transaction, such as commodity futures contracts, this is valid.
However, in the case of the stock market and the housing market, wealth can be destroyed.
Let's suppose I purchase some stock - 100 shares, at $10 per share, or $1,000.00. I give someone my money, they give me stock certificates. This is wealth neutral.
The stock goes up to $20 per share. No one has lost $1,000 - but wealth has been created. I now have $2,000.
Alas, the stock now goes down to $1 per share. I have lost wealth - and no one has gotten an offsetting benefit.
6.8SPC_DUMP
03-20-2009, 22:57
If I may be permitted a quibble...
In the case of a zero-sum transaction, such as commodity futures contracts, this is valid.
However, in the case of the stock market and the housing market, wealth can be destroyed.
Let's suppose I purchase some stock - 100 shares, at $10 per share, or $1,000.00. I give someone my money, they give me stock certificates. This is wealth neutral.
The stock goes up to $20 per share. No one has lost $1,000 - but wealth has been created. I now have $2,000.
Alas, the stock now goes down to $1 per share. I have lost wealth - and no one has gotten an offsetting benefit.
The share holders of competing institutions would likely benefit. Or institutions would be developed to fill the need.
I mean "wealth" in the macro sense of spending power.
There's a lot more to quibble about with what I said and I hope you and others do challenge me to improve - in general.