Bernanke On Economy: Bad Winter, Better Spring

[Shapecity]

<div class='quotetop'>QUOTE </div><div class='quotemain'></p>

The U.S. economy is in for a rough winter and a better spring, Federal Reserve Chairman Ben Bernanke told congress today.</p>

The moderate 3.9% gross domestic product growth rate of the economy in the third quarter will slow in the months ahead, amid turmoil in the housing and credit markets and rising energy prices, but "by spring, the broader resiliency of the economy" will help it recover "to a more reasonable growth pace," he told Congress' Joint Economic Committee Thursday.</p>

While he didn't dare predict a recession, Bernanke said the rate-setting Federal Open Market Committee at its meeting last week "did not see growth performance as likely to be sustained in the near term." He told lawmakers Thursday it could be April before the freeze on the economy from the mortgage fiasco begins to thaw.</p>

Pretty amazing, given oil prices approaching $100 a barrel, the dollar falling to record lows (threatening inflation by driving up import prices), and investment houses like Merrill Lynch (nyse: MER - news - people ) and Citibank writing off billions in mortgage-backed securities.</p>

But don&rsquo;t expect a rate cut anytime soon. Bernanke's general message was that, yes, we're in for a spell, but the smoke should clear by the middle of next year. If nothing else, he's got history on his side. Since World War II, economic growth in presidential election years has generally been stronger than the year prior to an election, government data show.</p>

The Fed can't do much about the price of oil, but Bernanke pledged to remain vigilant about rising commodity prices spilling over into other sectors of the economy. He said the broader U.S. economy has been resilient in spite of concerns about energy and mortgage-related problems, largely because the labor market has been strong (propping up consumer spending) and because the demand for U.S. exports has been high, thanks to the low dollar.</p>

<font size="5">Keeping the dollar at a level that encourages exports, but does not expose the U.S. to inflation, will be a delicate balancing act for the Fed. And in spite of recent talk form other countries (China, in particular) to dump some of their dollar reserves for euros, Bernanke says he's "not concerned" because the dollar "remains a standard of value around the world, and I expect that to continue."</font></p>

The strength of the dollar, at least in the medium term, is dependent on several factors, he said: the strength of the overall U.S. economy, the trade situation and the openness of the U.S. for foreign investments.</p>

While Bernanke was speaking Thursday, the House of Representatives finally passed a much-debated free trade agreement with Peru. It's a start.</div></p>

Source: Forbes</p>

I cannot stand Helicopter Ben and these bold face lies to create a false sense of security for the market.</p>

 

[MikeDC]

You think saying theWinter is going to suck is giving a false sense of security? </p>

It sounds pretty on target to me. Folks need to appreciate just what a hard job it is to say anything at all. It's not a matter of just "telling it like it is", because "like it is" changes depending on how it's told. Sound too harsh and perception becomes reality. People get scared and take more drastic measures to cut back than they should. Sound too rosey and that perception becomes temporary reality, meaning that people will gamble on it being true when it may or may not be.</p>

 

[Shapecity]

No saying a better Spring is the comment I don't agree with. Just a few months ago he said the Fed expected a strong 4th quarter.</p>

 

[Denny Crane]

At $100/barrel, peoples' heating oil expenses will be bigger over the winter. In the spring, the need for heating oil is less. I'm not sure what the issue is?</p>

 

[Shapecity]

What's going to drive the US economy next year?</p>

The oil prices having even hit the gas pumps yet. Fortunately, our US refineries are working at optimal capacity so we don't need to rely on the $80.00, $90.00, soon to be over $100.00 barrell gas. Once there's a hiccup in our refineries you'll see gas prices spike at the pump.</p>

There's another 10% of ARMs resetting in 2008 an estimated $1.1 TRILLION</p>

There's too, many people living outside of their means and not saving. With a weak dollar our consumption will go down and people won't have the disposable income they enjoyed.</p>

No better Spring ahead.</p>

</p>

 

[MikeDC]

<div class='quotetop'>QUOTE (shapecity)</div><div class='quotemain'></p>

What's going to drive the US economy next year?</p>

The oil prices having even hit the gas pumps yet. Fortunately, our US refineries are working at optimal capacity so we don't need to rely on the $80.00, $90.00, soon to be over $100.00 barrell gas. Once there's a hiccup in our refineries you'll see gas prices spike at the pump.</p>

There's another 10% of ARMs resetting in 2008 an estimated $1.1 TRILLION</p>

There's too, many people living outside of their means and not saving. With a weak dollar our consumption will go down and people won't have the disposable income they enjoyed.</p>

No better Spring ahead.</div></p>

Which, even if it were true (it's not) would again, be a fairly counterproductive thing to say.</p>

At the same time, your concerns are mutually exclusive to simultaneously satisfy. On one hand, you're saying it sucks that people don't save enough, but you're also saying you want people to consume just as much as always. That's called having your cake and eating it too. Or maybe not having your cake and not eating it in this case.</p>

The reality of things is probably more complicated but not so bleak. I think the structure of the construction, home and banking industries are moderately screwed up, and that will take time to correct itself. In the short-run, it will mean some people at the margin lose their jobs or houses (though most of those will go to other people at lower prices, who benefit, and, while equity will be lost, equity is largely on paper). That's not ideal, but it's not the end of the world either. The people and companies that made bad decisions on mortgages will migrate to other financial services and reevaluate their choices. The people that built new houses will remodel existing houses and fill other trades. The fundamental skills such people had aren't being destroyed, so they'll find another use for their labor.</p>

The decline in the dollar has been "expected" now for something like 25 years. It's being managed fairly well as far as I can tell, and exports of American goods are already surging (which, coming back to the point above, provides myriad jobs for the sort of folks dislocated by the housing mess).</p>

Similarly, people have been saying people don't save enough forever. The evidence isn't so clear on that, but my personal belief is that, while lots of people do make moronic decisions, "necessary" saviings are also somewhat overestimated. The current scheme is largely a product of the vast set of government sponsored incentives that push people into strange savings decisions IMO. It's messy, but I don't see a fundamental disaster or anything.</p>

But going back to Bernanke, you can't simply shake everyone's confidence and you can't be complete sunshine in his position, or you end up creating problems.</p>

</p>

 

[Shapecity]

On one hand, you're saying it sucks that people don't save enough, but you're also saying you want people to consume just as much as always. That's called having your cake and eating it too. Or maybe not having your cake and not eating it in this case.</p>

I'm not saying this he is. I don't want people to consume more.</p>

Having a weak dollar will deter foreign investement in US stocks, bonds and the market. The prices for a lot of the companies driving the market (ie tech stocks) are over valued already.</p>

Exports have been surging, but let's see if that continues with the way oil pricing is headed.</p>

 

[CelticKing]

Do you guys think that another problem we have as a country is that we're not selling goods like we used to in the past?</p>

 

[MikeDC]

<div class='quotetop'>QUOTE (shapecity)</div><div class='quotemain'></p>

On one hand, you're saying it sucks that people don't save enough, but you're also saying you want people to consume just as much as always. That's called having your cake and eating it too. Or maybe not having your cake and not eating it in this case.</p>

I'm not saying this he is. I don't want people to consume more.</p>

Having a weak dollar will deter foreign investement in US stocks, bonds and the market. The prices for a lot of the companies driving the market (ie tech stocks) are over valued already.</p>

Exports have been surging, but let's see if that continues with the way oil pricing is headed.</p>

</div></p>

The two things are linked though.. FDI will go down and exports will go up. So that will be a break on stocks that are, as you say, already overvalued.</p>

--------------</p>

And no, I don't think it's a matter of producing goods vs. services. What matters is producing something of value that people are willing to buy.</p>

</p>

 

[Shapecity]

What are we producing that people are willing to buy? Agriculture and Diesel?</p>

 

[Denny Crane]

<div class='quotetop'>QUOTE (shapecity)</div><div class='quotemain'></p>

On one hand, you're saying it sucks that people don't save enough, but you're also saying you want people to consume just as much as always. That's called having your cake and eating it too. Or maybe not having your cake and not eating it in this case.</p>

I'm not saying this he is. I don't want people to consume more.</p>

Having a weak dollar will deter foreign investement in US stocks, bonds and the market. The prices for a lot of the companies driving the market (ie tech stocks) are over valued already.</p>

Exports have been surging, but let's see if that continues with the way oil pricing is headed.</p>

</div></p>

</p>

I'm not sure this is true at all. Having a weak dollar means foreigners can buy US equities and bonds at a discount. If the market is over valued already, it's still an advantage to those who get the discount.</p>

Last time I remember the dollar being like this was in the 80s, and people were kinda pissed that the Japanese were buying everything (like movie studios and famous buildings). This time around, it may be the Chinese - which might help the trade deficit.</p>

</p>

 

[Shapecity]

Foreign countries are no longer interested in buying our debt. China is already selling off US dollars and diversifying their investment.</p>

 

[Denny Crane]

IBM's debt is not the federal government's debt. Dollars aren't T-Bills - if the feds want to sell more debt, they're going to have to offer better interest rates.</p>

</p>

</p>

</p>

 

[bbwMax]

<div class='quotetop'>QUOTE (CelticKing)</div><div class='quotemain'></p>

Do you guys think that another problem we have as a country is that we're not selling goods like we used to in the past?</p>

</div></p>

Not as bad as us in the UK. Because of the strength of The GB Pound it means other countries e.g. The U.S aren't buying our products like they used to. This is good for British Imports as it means foreign items cost less but most people (Including me) Beleive we are going to have a massive recession soon This would of course be very bad news for Our economy. What i don't like is that due to the American Mortgage and Interest crisis it has meant that we have been badly effected as Less British people are afraid to inject more money into American and British Investments. If this doesn't get sorted out soon both the UK and America could go through a massive Recession which would propell China into World Domination and possibly mean the the USA wouldn't be the strongest nation. And as Patriotic as i am I would rather see the US and Dumbass Bush run it then the Chinese.</p>

</p>

 

[Shapecity]

<div class='quotetop'>QUOTE (Denny Crane)</div><div class='quotemain'></p>

IBM's debt is not the federal government's debt. Dollars aren't T-Bills - if the feds want to sell more debt, they're going to have to offer better interest rates.</p>

</div></p>

I agree we need to jack up our interest rates substantially and tighten up the spending.</p>

</p>

 

[Shapecity]

<div class='quotetop'>QUOTE (Max)</div><div class='quotemain'></p>

<div class='quotetop'>QUOTE (CelticKing)</div><div class='quotemain'></p>

Do you guys think that another problem we have as a country is that we're not selling goods like we used to in the past?</p>

</div></p>

Not as bad as us in the UK. Because of the strength of The GB Pound it means other countries e.g. The U.S aren't buying our products like they used to. This is good for British Imports as it means foreign items cost less but most people (Including me) Beleive we are going to have a massive recession soon This would of course be very bad news for Our economy. What i don't like is that due to the American Mortgage and Interest crisis it has meant that we have been badly effected as Less British people are afraid to inject more money into American and British Investments. If this doesn't get sorted out soon both the UK and America could go through a massive Recession which would propell China into World Domination and possibly mean the the USA wouldn't be the strongest nation. And as Patriotic as i am I would rather see the US and Dumbass Bush run it then the Chinese.</p>

</div></p>

A lot of UK citizens purchased property in Florida. They are getting rocked with those investments. China is experiencing crazy inflation levels right now. People aren't able to afford food. There's been several riots already.</p>

</p>

 

[CelticKing]

Do any of you guys think that the dollar will eventually become stronger than the euro?</p>

</p>

 

[MikeDC]

<div class='quotetop'>QUOTE (Denny Crane)</div><div class='quotemain'></p>

<div class='quotetop'>QUOTE (shapecity)</div><div class='quotemain'></p>

On one hand, you're saying it sucks that people don't save enough, but you're also saying you want people to consume just as much as always. That's called having your cake and eating it too. Or maybe not having your cake and not eating it in this case.</p>

I'm not saying this he is. I don't want people to consume more.</p>

Having a weak dollar will deter foreign investement in US stocks, bonds and the market. The prices for a lot of the companies driving the market (ie tech stocks) are over valued already.</p>

Exports have been surging, but let's see if that continues with the way oil pricing is headed.</p>

</div></p>

I'm not sure this is true at all. Having a weak dollar means foreigners can buy US equities and bonds at a discount. If the market is over valued already, it's still an advantage to those who get the discount.</p>

Last time I remember the dollar being like this was in the 80s, and people were kinda pissed that the Japanese were buying everything (like movie studios and famous buildings). This time around, it may be the Chinese - which might help the trade deficit.</div></p>

That is the standard view, but you also have to factor in time and the direction things are going. At this point we aren't seeing a big amounts of foreign investment and won't <u>until</u> the dollar stabilizes. Think about it; any investment a foreigner (say, someone who ultimately wants to convert to Yen or Euros or Yuan) would potentially have to make in the US would have to be X% better than any alternative use of the money to account for the X% devaluation they expect to occur.</p>

In the longer run, of course, you're right (I think, anyway, I don't believe anyone really knows exactly what the hell will happen). But my guess is that after a few more months of devaluation and investor caution, exports will rise, and investments, at a lower price, will begain to look more attractive to everyone. Foreigners will buy more then, of course, because their currency will be relatively more valuable and there won't be the expectation of a continued fall.</p>

</p>

 

[Denny Crane]

^^^ At some price, foreigners figure it's worth buying companies like MGM because they have assets (like movies/properties) that don't devalue over time.</p>

</p>

 

[MikeDC]

Oh, I don't disagree with that at all. I just figure it the same way I figure buying anything. If I think it'll be cheaper next week, I wait until next week.</p>

 

[Denny Crane]

There's only one MGM tho. It's not like you're waiting for the price of milk to drop before buying a gallon.</p>

</p>

</p>

 

[MikeDC]

<div class='quotetop'>QUOTE (Denny Crane)</div><div class='quotemain'></p>

There's only one MGM tho. It's not like you're waiting for the price of milk to drop before buying a gallon.</div></p>

I'm by no means an expert, but that's sort of the 80s paradigm of what happened. You had a lot of "unique" big ticket items purchased back them. Rockefeller Center was one of the more famous purchases. It turned out to be a pretty bad investment for the guys who bought it, who ultimately were just trying to make a buck like everyone else.</p>

Again, I wouldn't deny that it will happen, but these assets aren't unique enough that they don't have competition for investment dollars.</p>

Of course, the overriding point is who cares who owns this stuff. It's not like Mitsubishi replaced the Rockettes and the annual Christmas tree with a sushi bar or anything.</p>

</p>