Bernanke Calls a Bottom -- Again

"There are 60,000 economists in the U.S., many of them employed full-time trying to forecast recessions and interest rates, and if they could do it successfully twice in a row, they'd all be millionaires by now … But, as far as I know, most of them are still gainfully employed, which ought to tell us something."
-- Peter Lynch

Such is the case with the wisdom of Ben Bernanke. Fresh off of calling the bottom a few weeks ago, he's back at the prediction game, telling CBS, "This [economic] decline will begin to moderate and we'll begin to see a leveling off," by late this year. Better yet, 2010 will be a year of celebration! "We'll see recovery beginning next year. And it will pick up steam over time," the Great Bearded One tells us.

I hope he's right. Heck, maybe he is. Still, the track record of economic predictions isn't very encouraging. The true value of a prediction, of course, is whether or not it comes true. With that in mind, here are a few other predictions Bernanke left us with over the past few years:

"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt."
-- Feb. 14, 2008

"More broadly, the prospects for maintaining economic growth at a solid pace in the period ahead appear good…"
-- April 27, 2006

"We may see somewhat better economic conditions during the second half of 2008, reflecting the effects of monetary and fiscal stimulus, reduced drag from residential construction, further progress in the repair of financial and credit markets, and still solid demand from abroad."
-- June 3, 2008

"The resulting reductions in funding pressures, together with the increased confidence created by the assurance that backstop liquidity is available to eligible institutions, should help to promote an orderly resolution of current market dislocations."
-- June 3, 2008

I don't use these admittedly cherry-picked quotes to heckle Bernanke's performance, but to show that forecasting macroeconomic moves is about as impossible as it gets.

The two biggest factors in righting the economy are:

  1. Stabilizing the financial sector, which means having clarity of toxic assets on the books of banks like Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) , which no one can accurately decipher right now.
  2. Restoring consumer confidence, which is largely a psychological, not economic, force.

As companies like American Express (NYSE: AXP  ) cut credit lines, and AIG (NYSE: AIG  ) keeps stumbling over bonus shenanigans that erode confidence in markets, the combination of credit problems that cause consumer confidence woes make this recession much different than anything we've dealt with in the past -- not the kind of thing for which you can take old data and extrapolate where we're going from here.

But, hey, what do I know? I'm predicting that he's wrong, which is probably just as pointless as Bernanke predicting that he's right.

For related Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. American Express is a Motley Fool Inside Value recommendation. The Fool owns shares of American Express. The Motley Fool is investors writing for investors.


Read/Post Comments (8) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2009, at 4:41 PM, Knifecatcher1 wrote:

    I don't read " ... decline will begin to moderate and we'll begin to see ..." as "calling a bottom" as you say.

    Mr Bernanke, as a Great Depression scholar and Chairman of the Federal Reserve, has every qualification to state his opinion. Exactly who are you to say he's wrong?

    Grind your ax where someone wants to listen to it.

  • Report this Comment On March 16, 2009, at 4:53 PM, swantly wrote:

    I think the point the writer is trying to make is that Bernanke's track record of predictions is far from perfect. I'm sick of supposed experts pretending that they have any more insight than the common investor when it comes to recessions and recoveries. As the quote at the beginning points out, if it could be done, he'd be retired rather than offering his supposed expertise.

  • Report this Comment On March 16, 2009, at 5:01 PM, whereaminow wrote:

    All I can say is... "Get a rope."

    David in Qatar

  • Report this Comment On March 16, 2009, at 5:22 PM, minduza wrote:

    come on guys Bernanke is not stupid, he knows that we are in deep sh*t, he knows that we are in depression. Federal reserve caused all this mess. But what else he can say? Listening to him you have to know that his comments are not objective.

  • Report this Comment On March 16, 2009, at 5:47 PM, nuf2bdangrus wrote:

    You know what they say about picking bottoms. Bernake should stick to cleaning up the crap from Greenspan.

  • Report this Comment On March 16, 2009, at 6:02 PM, DavidMountain wrote:

    It seems to me like now would be a good time to re-build currency worldwide on something substantial. Perhaps I'm misinformed but I believe that this whole global financial crisis was caused by the invention of money at cheap interest rates by financial institutions.

    I'm sure everyones read about how from every dollar invested in a bank somewhere that one dollar can be lent out to numerous different people different times. When global currencies are able to be manipulated in such a way it just goes to show that money itself is just an illusion and we're always going to have these same problems of confidence till we base it on something real, call it a gold standard or whatever.

    I for one am sick to death of being taxed and (even though I live in NZ and we have our own reserve bank) the federal reserve is simply another method of taxing everyone and giving money back to the government to dish out again at interest.

  • Report this Comment On March 16, 2009, at 10:01 PM, cnicog wrote:

    You guys can watch zeitgeist and zeitgeist addendum on youtube, lot of explaining on the monetary system

  • Report this Comment On March 16, 2009, at 11:48 PM, gskibum wrote:

    cnicog, it seems to me everyone here grasps the concept of fractional reserve banking already.

    No need to go promote some insane 9/11 conspiracy theory tripe around here.

Add your comment.

DocumentId: 852545, ~/Articles/ArticleHandler.aspx, 4/19/2014 4:26:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement