Wikinvest Wire

The situation appears to have gotten incredibly worse

Wednesday, April 02, 2008

At the Joint Economic Committee group therapy session today, Federal Reserve Chairman Ben Bernanke said that a recession was possible (which really means he's pretty sure we're already in one), Rep. Ron Paul (R-Texas) asked a four minute long question about "the business cycle" that nobody understood, Senator Ted Kennedy (D-Mass.) compared "unsafe financial products" to Chinese toys with lead paint, Sen Robert Bennett (R-Utah) talked about the Dutch Tulip mania, and Rep Loretta Sanchez (D-Calif.) fretted about her rapidly declining net worth now that both housing and stock prices are falling.

But, the real star of today's Senate hearing was Representative Elijah Cummings (D-Maryland), who started off by reminding the Fed chief how awful a forecaster he's been before pleading for somebody to do something to help his constituents.
Some highlights:

It was just five months ago that you testified before this very committee that the Federal Reserve had a very positive outlook on the economy. Unfortunately, since November of 2007, the situation appears to have gotten incredibly worse.

Foreclosures have risen, home values have fallen. Many of the people in my district and throughout this country are paying a lot more for food and gasoline. And they tell me that when you speak, a whole lot of people listen. There are people sitting around their televisions sets right now, trying to figure out if you'll say something that will give them a sense of hope and give them a sense that things will get better. There are people who can't even afford the gasoline to get to their jobs.
You're the one that we depend on. You're the superstar. And I'm very serious about that. So we come to you and say, "What is it?" I mean, I'm just asking you for three or four thing that you would love to see us do that would help this situation.

Let me tell you something. The people that listen to this - the people in my district - they're trying to figure out how this is going to affect their gas prices. Or, at least their ability to pay for it. How is this going to affect their ability to pay their mortgages.

I mean, this is real. I've got people who are saying, they're not driving much anymore. And you know what that means? When they don't drive much anymore, a lot of those fast food places and shopping centers - they don't get the business. So, I'm just wondering, what would you like to see us do? What would you recommend to us?
An honest answer would have been, "Tell your constituents to get used to a lower standard of living".

But, instead, the Fed chairman pulled out the Federal Reserve trump card that can never be beaten by any elected official at any time. He told the Congressman that the U.S. government ought to improve education so we can better compete globally.

That usually ends the discussion.

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little larry sellers said...

Bernanke's statements frighten me as well. We all know the Fed presents the rosiest possible forecast, so for Helicopher Ben to acknowledge the possibility of a recession for the first time must mean things are grim indeed. I don't think this was just to lay the groundwork for more rate cuts in four weeks. He could have mumbled something about not yet slaying the dragon of deflation or some other coded message rather than explicitly mentioning the word "recession".

Fed statements have been polyannish for quite a while, so why stop now, especially when the press will never hold their feet to the fire? What do they have to gain by suddenly appearing gloomy? And why in the world did Bernanke not try to keep yesterday's momentum going?

Anonymous said...

There is a lot of sense in saying something like spend the effort on education. Fed is only supposed to play with credit and money supply.

Government can do little to improve the real economy.

Course they could stop tinkering with the currency altogether. That would be a start.

little larry sellers said...

The statements on education are pure filler. Bill Gates discovered this long ago when he started pleading for more technically oriented education while simultaneously putting great emphasis on hiring H-1B visa holders because they're cheaper and cannot quit jobs without jeopardizing their immigration status. Many others have echoed Gates since then for selfish reasons. I used to date an H-1B holder so I've seen the game played up close. If any of this comes as a surprise, take a gander at this:

Besides, education does us no good if large portions of our consumer-based economy go belly up. One of my college economics professors used to have a saying for that situation ("it would be Road Warrior!"). If we reach that point, our college transcripts will take a backseat to figuring out which of us is cool enough to score with Warrior Woman.

Oh, and even if the economy somehow purrs along for many years to come, the key to success is finding work that cannot be outsourced yet also cannot be performed by immigrants. Of course, if you have the means to benefit from cronyism of some sort, that's still the best option.

Stalky said...

Hey Tim, have you seen "Dr. Greenspan's Amazing Invisible Thesis" at Barron's?


Mathlete said...

This is just pathetic. The Congressmen are almost completely clueless. Where's King Canute when you need him?

Anonymous said...

Annother honest answer would have been, "Tell your constituents to vote for better representation".

Democracy Lover said...

Of course, if the Congress tried to improve education, the Fed Chairman and the entire Republican Party would go off about deficit spending and shoot it down.

These hearings do little more than provide free TV time for the Congressclowns and demonstrate yet again that no one in the Executive Branch (or the "independent" Fed) gives a rat's ass what Congress says or thinks because they do nothing.

Now the Bushies want to "save" the economy by turning all the authority they might have over the financial markets to the secretive Fed that is isolated from political oversight. That way there will be less air time for Congress critters.

Anonymous said...

I mean, this is real. I've got people who are saying, they're not driving much anymore. And you know what that means? When they don't drive much anymore, a lot of those fast food places and shopping centers - they don't get the business. So, I'm just wondering, what would you like to see us do? What would you recommend to us?

Right. After all, the Constitution and the Old Testament guarantee Americans endless rivers of cheap gasoline, don't they?

Still, I can't entirely blame Cummings for grandstanding. In my lifetime, the only two national politicians (Carter and Mondale) who tried to speak to Americans as though they were sentient adults didn't exactly benefit from their candor.

(Yes, I know Carter was a lousy politician. That doesn't negate the fact that he remains the only U.S. president who saw our increasing, oil-fueled entanglement in the SW Asia and the Persian Gulf as epic strategic error.

And yes, I know Mondale was an uninspiring politician. But at least he had the integrity to refuse to pander and promise that he'd never raise taxes. Reagan, bound by neither scruples nor intellect, never had reservations about telling people what they wanted to hear.)

Anonymous said...

This is addressed as reply to little larry who commented about H1B. While I agree that H1B program is abused somewhat, but most abusers are Indian companies or Indian/greedy consultants here in USA. Most US companies (including Microsoft) hire H1Bs not due to cheap or slavery benefits but because they are the best the companies can get. Kindly do not generalize one's problem with everybody. Even in company like MSFT, a H1B holder may get stuck but it is due to delay in getting green card which is not the issue that is lobbied by companies. Either way, I have started noticing big decline of new H1Bs in the last 2-3 years. One reason is due to people fed up with quotas and delays, and the other reason is they are happy to work for MSFT in India itself.

Anonymous said...

".... to improve education so we can better compete globally."

And maybe as smart as Ben

Anonymous said...

Money Supply Growth Annually

12.3% - EURO
15.3% - USD
11.6% - UK
12.0% - CANADA
18.5% - KIINA
22.8% - INTIA
52.0% - RUSSIA
19.0% - BRAZIL
23.4% - South Africa
21.1% - Saudi Arabia
30.3% - Oman
11.4% - Philippines

more money chase fewer goods...

"Austrians warn of a crack-up boom, wherein the real economy suffers from encroachment by the financial sector, and monetary debasement urges on investment in hard assets, commodities, and energy supplies. The flight from paper currency and securities has encouraged investment in things essential for industrial production, building construction, energy output, and food preparation."

"Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities will not cease to rise, everybody becomes eager to buy as much as possible and restrict his cash holdings to minimum size… If the credit expansion is not stopped in time, the boom turns to crack-up boom: the flight into real values begins, and the whole monetary system founders.”
-- Ludwig von Mises (1949)

"At first, no one can tell the difference between a real dollar - one that is earned, saved, invested or spent - and one that just came off the printing presses. They figure that the new dollar is as good as the old one. And then, prices rise...and people don't know what to make of it. Later, they begin to catch on...and all Hell breaks loose."

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