Ready For Double Dip?
It would seem that this weakening of the economy has got the Fed worried enough so that Bernanke has to make a statement to settle the jittery investors on Wall Street. Amazing how much that tail wags the dog of the economic movers and shakers. I wonder why we even have a stock market. After all it is only a speculative toy for the rich. It certainly is not something the average person should be much concerned with unless you are sitting on a large bundle of cash.
Government policies to push people into the stock market through 401ks etc have proven to be a risky way to plan a retirement when the market is such a volatile mechanism to accumulate savings for retirement. It is a way of basically taking responsibility off the hands of the government for retirees and putting it into the hands of each citizen through a mechanism that doesn't give the individual much control. All it does is give each person a minor vested interest in seeing the stock market do well, a cheap insurance policy against people rebelling and calling for a different way to organize the economy, i.e. socialism.
"Ben Bernanke promises to step in as US economy veers back towards recession
Katie Allen
guardian.co.uk, Friday 27 August 2010 16.37 BST
US central bank boss Ben Bernanke today vowed to step in to prop up a fragile US economic recovery if needed as he conceded growth had been weaker than the Federal Reserve had expected.
Amid growing talk that the world's largest economy is headed for a double-dip recession, the Federal Reserve chairman said that the recovery around the world still had a long way to run and that unemployment remained "too high". But the US central bank was ready to help if needed, Bernanke said in his speech at the Jackson Hole symposium of central bankers in Wyoming.
His remarks helped stock markets rally as they looked to the Fed to pump money into the US economy, although they had initially fallen as traders digested his gloomy remarks on the recent slowdown in growth.
Having taking radical action to rekindle growth during the recession, Bernanke denied that policymakers had run out of options now the recovery was faltering.
"The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools," he said in his speech, entitled The Economic Outlook and Monetary Policy. "Should further action prove necessary, policy options are available to provide additional stimulus.
"The committee will certainly use its tools as needed to maintain price stability – avoiding excessive inflation or further disinflation – and to promote the continuation of the economic recovery."
Economists had been divided ahead of the speech as to whether Bernanke would provide any hints on the prospects of the Fed embarking on more quantitative easing (QE) – the system whereby it buys assets such as government bonds from banks and the commercial sector, pumping more cash into the financial system while at the same time cutting market rates.
As expected, Bernanke steered clear of giving the market any strong hints on what might prompt more QE or any other stimulus. "At this juncture, the committee has not agreed on specific criteria or triggers for further action," he said.
Bernanke highlighted several weak spots in the US recovery, including "slower-than-expected growth in consumer spending, as well as continued weakness in residential and non-residential construction".
He said: "Although private final demand, output and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected."
In the longer term, he was more optimistic, predicting "some pickup" in growth in 2011 and subsequent years, although he conceded that "the economy remains vulnerable to unexpected developments".
He also outlined global problems. "For much of the world, the task of economic recovery and repair remains far from complete. In many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow and joblessness remains too high. Financial conditions are generally much improved, but bank credit remains tight; moreover, much of the work of implementing financial reform lies ahead of us," he said.
The US government said GDP grew at an annual pace of 1.6%, down from the 2.4% it had estimated a month ago. But that figure was above the 1.4% forecast by a Reuters poll of analysts. Some had been expecting an even weaker reading after the slew of downbeat indicators in recent weeks."
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