Bernanke's Faux Recovery by Mike Whitney

[Crewleader]

Weekend Edition
December 11-13, 2009

Still Underwater

Bernanke's Faux Recovery

By MIKE WHITNEY

"Economic recovery" is a term that has no fixed meaning. But it's worth mulling over to determine whether aggregate demand is strong enough to keep the economy from tipping back into recession. In normal times, the Fed slashes interest rates to increase the flow of capital to the markets and to consumers via lending at the banks. That's the traditional method of "jump starting" the economy.

The Fed has never initiated policies which provide unlimited guarantees for underwater financial institutions. Nor has it ever poured more than a trillion dollars directly into the financial system by creating excess reserves at the banks and direct purchases of long-term assets. (Quantitative Easing) All of this is new. Naturally, this ocean of liquidity has produced price distortions which have been confused with real recovery. The S&P has soared more than 60 percent in the last 9 months, even though the yield on short-term Treasuries are at historic lows.

What does it mean? It means that investors are still fearfully shoving money into safe/conservative bonds, while speculators--who have access to the Fed's zero-rate capital--are loading up on high-risk assets and pushing stocks into the stratosphere. This doesn't tell us anything about organic growth in the economy or whether consumers--who make up 70 percent of GDP--will be able to sustain demand going forward. It's mostly just hype.

On Thursday, Gallup released a new report titled "Upper-Income Spending Reverts to New Normal". Here's a clip:

"In a sign that the new normal in consumer spending continues unabated, upper-income Americans' self-reported average daily spending in stores, restaurants, gas stations, and online fell 14 per cent in November, reverting to its relatively tight ($107 to $121) pre-October 2009 average monthly range. Middle- and lower-income consumer discretionary spending increased by 7 per cent last month but remained in its tight 2009 average monthly range of $52 to $61. Still, consumer spending by both income groups continues to trail year-ago levels by 20 per cent, even as those comparables have gotten easier to match -- possibly dashing hopes that upscale retailers and big-ticket-item sales will do better this year."

http://www.counterpunch.org/whitney12112009.htm

[ixion]

1. Prior to the crash, the economy was 70% consumer-driven

now, the American consumer is tapped out. Credit lines reduced, closed; interest rates jacked such that even using the card is crazy. Millions of people underwater in their mortgages, and un- or under- employed.


Ergo: There will be no consumer-driven recovery. And because there will be no such recovery, the economy is going to have to re-tool and find a new source of revenue.

It's not doing that right now. Right now, people are hoping that everything will just return to 'normal'.

But the new normal is like something most people have not yet experienced.

[PM Martin]

2. Alternative energy could be that source, but it seems

that your congress is not interested in doing anything to promote "green technology". China is soon going to be the leader in this field. :puke: