Once again, America is coming out of a very difficult recession. Undoubtedly, we still have a ways to go, but as always, Americans are confident and determined to get there. Putting things in perspective, Federal Reserve Chairman Ben S. Bernanke said the global economy is beginning to rise above the recession after “aggressive” action by central banks and governments.“Economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,” Bernanke said today in a speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming.
When Bernanke was speaking to an audience of central bankers and academics, he warned that the world still confronts “critical” challenges. This warning underscored the Fed’s decision last week to leave interest rates near zero for an “extended period” and to delay the scheduled end to its $300 billion program to buy U.S. Treasuries by about a month.
“Strains persist in many financial markets across the globe, financial institutions face additional significant losses and many businesses and households continue to experience considerable difficulty gaining access to credit,” Bernanke said. Recovery “is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
While most economists predict the U.S. will return to growth this year, they say the jobless rate is likely to rise beyond 10 percent, restraining consumer spending and casting a cloud over the strength of the recovery. However, that is to be expected as the dust of the financial marketplace settles and balances itself out.
Dips and Valleys Part Of Recovery
The U.S. economy “is still weak and it’s not at all clear that the upturn that we’ve seen recently is the beginning of a sustainable rise,” Harvard University economist Martin Feldstein said in a Bloomberg Television interview in Jackson Hole. “There’s a serious danger that come the end of this year and the beginning of next year we will see it slipping back down again.”
Economists feel the forecast the U.S. economy will expand at a 2.2 percent annual rate in the third quarter, according to a median estimate in an August survey conducted by Bloomberg News. The International Monetary Fund last month predicted the world economy will grow 2.5 percent in 2010 after contracting 1.4 percent this year.
“The worst of the credit crisis probably ended in March and the recession probably ended in the current quarter,” economist David Jones, president of DMJ Advisors LLC in Denver, said today in an interview on Bloomberg Radio.
United States
A 7.2 percent jump in existing U.S. home sales last month, reported today by the National Association of Realtors, added to evidence the housing crisis is easing. Purchases climbed to a 5.24 million annual rate, the most since August 2007. U.S. stocks gained for a fourth day, with the Standard and Poor’s 500 Index rising 1.6 percent at 12:14 p.m. in New York. Benchmark 10-year notes yielded 3.54 percent, up 11 basis points from yesterday. European Central Bank President Jean-Claude Trichet and Bank of Japan Governor Masaaki Shirakawa are scheduled tomorrow to address the conference. The topic of the central bank’s mountainside conference this year is financial stability and macroeconomic policy.
Germany, Japan
Signs are emerging that growth is resuming in other countries, with Japan, Germany and France all expanding in the second quarter. The Paris-based Organization for Economic Cooperation and Development said Aug. 19 that the economy of its 30 members was flat in the second quarter after contracting 2.1 percent in the previous three months.
Forecast
The IMF may raise its forecast for the global economic rebound, John Lipsky, the fund’s first deputy managing director, said in an interview yesterday in Jackson Hole. A “strong and unprecedented international policy response” averted “the imminent collapse of the global financial system,” Bernanke said. The Fed has “consistently maintained” that the failure of a large, interconnected financial institution would have dire consequences for markets and the economy. “We have therefore spared no effort, within our legal authorities and in appropriate cooperation with other agencies, to avert such a failure,” he said. “The case of the investment bank Lehman Brothers proved exceptionally difficult, however.” The Fed chairman reiterated that Lehman had inadequate collateral to merit a Fed loan “of sufficient size to meet its funding needs.” The government also lacked the authority to inject capital and sustain the firm, he said. Lehman Brothers Holdings Inc. filed for bankruptcy in September.
Concentrated Actions Avoided Much Worse
“Although concerted policy actions avoided much worse outcomes, the financial shocks of September and October nevertheless severely damaged the global economy — starkly illustrating the potential effects of financial stress on real economic activity,” Bernanke said. At last week’s meeting, Fed policy makers extended their program to buy long-term U.S. Treasuries through October, aiming to ensure a “smooth transition in markets.” They also affirmed a pledge to keep interest rates near a record low even as they determined the economy is “leveling out.” Since the collapse of Lehman, the Fed has bought as much as $350 billion of short-term debt issued by companies including General Electric Co. and expanded currency swaps with other central banks to aid financial firms outside the U.S.
Increased Debt Purchases
Bernanke has also led policy makers in a reduction of the benchmark interest rate almost to zero and in the purchase of as much as $1.75 trillion of Treasuries and housing debt. ”As severe as the economic impact has been, however, the outcome could have been decidedly worse,” Bernanke said. “Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal and financial policies around the world have been aggressive and complementary.” Policy makers must now rewrite regulations to reflect lessons from the crisis, and that will prevent “a recurrence of the events of the past two years,” he said.
Bernanke 2nd Term Nomination Well Deserved
President Barack Obama has yet to indicate whether he will nominate Bernanke for a second term as Fed chief after his current term ends Jan. 31. Feldstein endorsed Bernanke for a second term. “He certainly deserves it. He has done a remarkably creative job of dealing with these problems,” Feldstein said. Investors and traders see reappointment as increasingly likely. Yesterday, futures contracts on the Web site Intrade showed a 79 percent chance Bernanke will be tapped for a second term.
Your best days are ahead,
The Empower Team
www.empoweryourbest.com
Do you need:
Mortgage Services?
Repair my credit?
Get rid of debt?
Reinvest IRA or 401k funds tax-free?
Find high-yield investments?
Does your business need:
Lines of credit?
Venture or angel capital?
Expansion/transition guidance?
Investment management?
Marketing/Branding Initiatives?
Click on the above links and ‘Request More Information’ to learn more about how you and Empower can work together to effectively implement your vision. Success is a choice. It is up to you.
Your Empower Blog Comments