Friday, August 26, 2011

The New Models Come Out in September

First quarter GDP has been revised downward to just one percent growth from 1.3%, still that’s better than actual shrinkage, but not much. With the Fed printing a trillion dollars during that period we should have seen more growth. The big problem is that the rich, their banks and corporations were able to simply absorb the money into their vaults and keep it out of the economy. More money printing with perhaps a more creative way to distribute it, this is the only solution available to the Fed and will almost certainly be required just to keep the whole mess from collapsing.

Fed Chairman Ben Bernanke gave a major speech today for bankers and made no mention of further Fed action in the next few months, but did take Congress to task for its lack of action. If you understand the real implications of what he said, it’s clear that he laid the blame squarely at the feet of Republicans, but since he uses rather non-committal language, they will spin it that he endorses the Republican position.

Bernanke admitted the obvious, that there has been no recovery and growth will be slow at best. He called for more stimulus, more infrastructure spending, more money for education and higher taxes but he didn’t put it in such blunt language so it will be largely ignored.

Bernanke has some opposition on the Fed Board to any further money printing as three members are sure there will be hyper-inflation. Gold prices were described as “choppy” today with traders hoping for another round of QE and were disappointed. The Fed did announce that next month’s meeting will last two days and this is doubtless because of the President’s big speech after Labor Day, and the return of the obstructionist Congress.

The Federal fiscal year ends September 30th and it provides many new hostage taking opportunities for the tea bag terrorists. The CBO projects that the current year’s deficit will be the smallest in three years at about 1.2 trillion. The Republicans continue to blame Obama for all deficits in the past two hundred years, and refuse to acknowledge that the worst deficit of all time was the final budget year of the Bush Administration. He even out did  Reagan who held the previous record for deficits, except for WWII, but that was the entire country mobilized for war. Reagan was just making his friends rich and so was Bush.

Obama has been steadily cutting spending and government jobs but gets no credit for this and instead Republicans make ridiculous claims of massive government growth and are never corrected by the “lame stream media”. Unfortunately cutting spending and jobs is exactly the wrong thing to do on the cusp of a depression, so I won’t give Obama any credit for it either. His speech in September needs to be full of big ideas, the CBO says we are running two trillion a year behind the GDP we should have. You could read into what Bernanke said today as a setup for Obama to start channeling FDR. We will find out in September which way the country is going, New Deal or Neo-Feudalism.


John said...

Great summary of our current situation.

You refer to "the return of the obstructionist Congress."

I would suggest they are more accurately described as the DE-structionist congress

John Puma

fype said...

P2, Is it my imagination, or does the made-up stuff carry the same weight with "John Q" as the real stuff? Not a lot of fact-checking going on. Except maybe here.