The press recently seems to be saying what they want regardless of what the facts are. Recently in a meeting before Congress, Fed Reserve Chairman Bernanke said that recovery would come in 2010 and might come earlier in 2009 if there were bold reforms enacted by Congress promptly. The news stories reported that Pres Obama had said recovery would come in 2009.
A simple consenss of what the President and Mr. Bernake have said is that it will take two to three years for recovery in the markets to occur. Plan on it. That is the way I see it. This would also be a good time to listen only to the original statements and to turn off the cable channels. During times of crisis, quiet action and not ranting is most effective. The American people have increased their saving rate--they are doing their part--government needs to do their part by enacting reforms of the past excesses of the last decade.
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I find the mass media coverage of Bernanke's speech to which you refer to be so disingenuous as to be outright lies.
ReplyDeleteWhat Bernanke actually said was that, while unlikely, it is possible that the economic decline will level out in 2009. He said that 2010 was more likely.
Two things are necessary for the present economic decline to stop. I am not talking about "a return to normalcy" as politicians in the 1930s put it, just an end to the economic decline, the point where things stop getting worse.
First, there must be an end to real estate price discovery. This means commercial as well as houses. Those prices must become stable. There is a long way to go on this; commercial real estate is just started downward in price, and it's decline is about where house prices were in late 2007.
Second, credit default swaps have to be neutralized. By neutralized I mean liquidated. This is a larger problem than the real estate decline has been and will be. Government action is required here. This will have profound economic and financial consequences.
Credit default swaps are what brought down Lehman and put AIG on life support. Right now the government is supporting the credit default swap market, keeping it from collapse, with about a trillion dollars in cash and another two or three trillion dollars in credit guaranties. Even the FDIC has about two trillion in guarantees out there.
The political question is who is to take the losses. The loss will be great. The Obama Treasury is afraid that liquidation of credit default swaps will crash the banking system. (This is a reasonable fear.) Certainly a lot of money is involved. Pension funds, insurance companies, and other entities the middle class is counting on will take a major hit.
A long way from the bottom, folks. As Churchill put it, "This is not the beginning of the end. Perhaps it is the end of the beginning."
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