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Hey, Federal Reserve Chairman Benjamin Bernanke's kinda sorta calling a bottom to our economic malaise -- it's time to get happy, right? Today, he revealed the results of his peek into his economic crystal ball, declaring that our economy could be on the road to recovery in 2010. Laissez les bons temps rouler!
There are caveats behind the optimistic headlines, including Bernanke's contention that our policy makers must make all the right moves to even begin a recovery in 2010. Given their track record so far, forgive me for being just a tad cynical about his prediction.
Hooray for "reasonable prospects?"
Bernanke admitted our economy is in a "severe" contraction, and that if the financial system isn't stabilized, the hard times could last into 2010. However, he said that "if actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability -- and only if that is the case, in my view -- there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery."
The turn of phrase "reasonable prospect" leaves a lot to be desired. And the actions taken by the administration(s), the Congress, and the Federal Reserve have seemed pretty darn ineffective thus far, succeeding only in expanding the threat of the zombie apocalypse devouring our economy.
This week cemented the idea that Citigroup (NYSE: C ) is dying a long, slow death; there are serious questions about Bank of America (NYSE: BAC ) , too. AIG (NYSE: AIG ) may have been bailed out and basically nationalized last year, but it's once again in need of capital. That financial support the government gave to General Motors (NYSE: GM ) also looks pointless at the moment, since the automaker's flat broke again.
I recently called out the new administration for resorting to shock tactics similar to those of its predecessor, all to pass a stimulus package that includes pork and moral hazard galore -- not to mention an ill-conceived Buy American provision. (Even companies like General Electric (NYSE: GE ) and Caterpillar (NYSE: CAT ) opposed this point, although it probably would have helped them in the near term.) Then again, I shouldn't be shocked. A good mugging requires that element of surprise and fear.
Behind the magic 8-ball
Important folks like Ben Bernanke are supposed to inspire our confidence, whether it's warranted or not. So far, they've failed. (At least Bernanke's speeches make more sense than the mind-numbing orations of his predecessor Alan Greenspan, whose own prognosticative powers aren't looking too hot these days.)
Last fall, I theorized that these pep talks were more like a con game, since all the upbeat statements weren't exactly accompanied by anything to be confident about. At the time, Bernanke argued that if the TARP bailout in the fall wasn't passed, we would have a recession. As it turned out, we'd already been in a recession since late 2007.
Some people suspected economic growth was already starting to run out of steam. Alas, our leaders apparently weren't among them. Earlier last year, the powers that be insisted up and down that the economic problems were controllable and contained.
Don't forget that "considerable uncertainty"
Granted, Bernanke admits there are caveats to his predictions, with admissions about "considerable uncertainty" in the Fed's own forecast. I'll give him some props for honesty, but it's shrewd of Bernanke to hedge in these unprecedented times. Even so, many of us may suspect his prediction will still prove too rosy.
Bernanke seems to say that the economy won't recover without the government's (and the Fed's) bright ideas -- he's advocating "strong" action. But what if those people just keep making the situation worse? The TARP was supposed to be "strong" action, too, and it doesn't seem to have made a dent in the crisis.
Meanwhile, the Fed's been contributing to our current disaster by continuing its years of debt-happy monetary policy. We're in this mess because the Fed and the government allowed the last few years to become a bubble of excessive indebtedness. Forgive me if I don't think enabling overspent individuals and entities to borrow even more, removing the incentive to save, and propping up bloated asset prices will do anything to fix matters.
Reality bites, doesn't it?
It's Bernanke's job -- and his livelihood -- to assure us all that the Fed and the government have everything under control. But the paradise of debt-driven spending in which we all spent the past few years was never realistic. Sooner or later, the bill had to come due. I hope our leaders realize that, but their attempts to "fix" the crisis leave me doubting their grasp of reality. Ugly as it may be, I think the economy simply needs to correct itself, without further interference.
Thanks for the predictions, Mr. Bernanke, but I'd rather wait and see myself how it all turns out.