Last night Dec 5th, 2010 Fed Chairman Bernanke spoke on CBS’s 60 minutes , on the Economy & some of his concerns
After $3.3Trillion pumped into the economy since 2008 to over 21,000 institutions what is Federal Reserve thinking going forward ?
Here’s a recap if you missed it :
Recovery & Unemployemt
- The Bernanke said that this is the worst recovery in US history with the main concern being unemployment at 9.8% and not improving much for the past 16 months (which is about the same as we were at when Economy is said to have recovered in mid 2009 )
- Economy has lost 8.5million jobs and only recovered about 1 million jobs
- 40% of those unemployed have been so for more than 6 months (not good since harder for them to get back into workforce)
- If Fed did not step in 2008 , unemployement could have been closer to 25% mirroring the Great Depression — also more companies would have failed during that time and we would have had many more AiG & Lehman Brother company failures.
- to get back to normal 5-6% unemployment could take 4-5 more years
- Education is a big factor in unemployed % – for College Grads only 5% unemployement but for High School Grads more than 10%
re: QE2 (Quantitative Easing 2) the $600 Billion & Fed actions in 2008
- The Bernanke said that it is a myth that the Federal Reserve is printing money as the $600 Billion comes from the Fed’s own reserves and not from taxes and does not add to the deficit. There is no exta money supply added by doing it this way.
- The $600 Billion would continue to be used to buy U.S. Treasury Securities (which is Government Debt) and by buying treasuries has the effect to reduce long term interest rates which should have a positive effect on housing and car loans by having the lower rates.
- The failures during 2008 would not been limited to the US alone but would have had a negative worldwide effect.
- He was disappointed he missed the 2008 failures prior to them happening and thought main factor was AiG or Lehman not being overseen by they Fed. Bernanke thought Fed could have done more to avert those problems before they occured.
re: Federal Debt & Budget
- Bernanke warned that within next 10-20 years , the Federal Budget would only have enough money to pay for Medicare, Medicaid, Social Security and the Interest on the Debt ( there would be no money left for Military spending or other governmnent services).
- He felt that this is something that does not need to be fixed in the coming year but will have to be addressed before problem becomes worse.
- Bernanke felt that one way to fix part of this problem is to cleanup the Tax Code.
Inflation & Deflation
- Bernanke said Fed would not let inflation rise past 2% or less and if that became an issue that Fed could raise rates within “15 minutes” so felt 100% confident that they could act in time to avert an inflationary problem.
- Chance of a double dip recession was unlikely ( he’s said this many times before as well).
- The reason Bernanke gave that a double dip recession was unlikely was that housing was already at very low levels.
- Deflation – lower prices /followed by lower wages, similar to what occured druing the Great Depression – he felt fairly low chance that deflation would happen but that the US was walking a fine line.
- wants a better balance of bank lending to businesses.
- doesn’t feel banks are quite yet there but they are not over/under lending but they are definitely not as aggressive as they were prior to 2008.
- overall he felt confident that the US would recover again but taking the earlier statements on unemployment could be 4-5 years down the road.
As you can see from the statements above the major problem has been unemployment not improving much and still at 9.8% . I usually talk to friends at Fortune 500 companies to get a feel for what is going on there. Although last year many companies cut/stopped bonuses, it seems that going into 2010 year end some of those people are getting bonuses again. It is true that at many large companies just to get an entry job in the mail room requires a College/University degree , so seems that non-college grads are the ones that will continue to have problems even as the economy improves.
The other major concern will be the US Federal Debt going 10-20 years from now since money may not be available. We’ve seen recently the problems California had just to meet their state budget but imagine that on a Federal level. It definitely will not be an easy fix. We’ve talked about this problem of Debt in the chatroom many times and it will definitely be more of a political problem/dilemna.
- 1st of all – goverenment tend to wait for the last minute to fix these problems ( we saw that in 2008)
- 2nd – which politician(s) will have the guts to propose such a big fix to the Fed. Debt problem and still be elected to office?
- It will probably need to me a mandatory Federal requirement that a budget problem/fix needs to be addressed with a timeline.
- What other problems would result from a massive miss in shortfall in the Federal Budget ( we can only imagine how many things would be cut at the last minute or where the US would turn to for $’s — China? Middle East? — those would definitely be other problems.
- 10 or 20 years seems like its a long time from now but time flies quickly and this is a problem that would have to be top priority for politicians to address
There is definitely no easy solution to the Federal Debt going forward but at some point as Bernanke said it has to be addressed.
Here’s the link to the full interview if you missed it :
The 2nd part of 60 minutes was with FaceBook’s Mark Zuckerberg on Privacy and the new Facebook layout – very interesting story too
Feel free to comment
Hope this recap helped ,
Fed Chairman Ben Bernanke discusses pressing economic issues, including unemployment, the deficit and the Fed’s controversial $600 billion U.S. Treasury Bill purchase. Scott Pelley reports.