Ben Bernanke on the U.S. Economy
September 17, 2009
The deep recession that's gripped the U.S. economy by the throat since December 2007 is "very likely over at this point," Federal Reserve Chairman Ben Bernanke recently said.
However, Bernanke painted a picture of an underperforming economy well into next year as he fielded questions after a speech at the Brookings Institution, a center-left research center in the nation's capital. "From a technical perspective the recession is very likely over," Bernanke said, cautioning that unemployment is likely to remain high. "It's still going to feel like a very weak economy for some time, as many people will still find that their job security and employment status is not what they wish it was. So that's a challenge for us and all policymakers going forward."
Most mainstream economists think that the National Bureau of Economic Research, the official scorekeeper of when recessions begin and end, eventually will declare that this downturn came to an end in the summer or early fall of 2009.
What follows may not feel much like recovery, Bernanke cautioned, because structural problems in the U.S. economy are likely to resurface. There will be economic growth during the rest of this year, "but the general view of most forecasters is the pace of growth in 2010 will be moderate, less than you might expect, given the depth of the recession, because of ongoing head winds." The "head winds" he referred to include an impaired credit system, households still trying to dig out from personal debt and ongoing adjustments in many sectors of the economy, such as construction and autos.
In addition, the government must unwind many of its massive stimulus efforts or risk igniting inflation. That's all likely to lead to a weaker recovery than after past recessions, and a lingering high unemployment rate.
The sluggish outlook was punctuated by August retail sales data recently released by the Commerce Department. Sales rose by 2.7% over July, driven up by the government's "cash for clunkers" car sales program and higher gasoline prices. Drop those two factors, and retail sales rose by only 0.6%. That's another sign of consumer reluctance to spend amid widespread job insecurity.
"The various fiscal stimulus measures, including the cash for clunkers program, are playing a pivotal role in jump-starting the economy in the third quarter of 2009, and that should create enough initial momentum to keep the recovery in motion, but we should not be looking for consumer spending to be a major driver of the recovery beyond the current quarter," Brian Bethune, a U.S. economist for forecaster IHS Global Insight, warned in a research note.
Looking over a longer horizon, Bernanke said that a major factor in the recent global expansion of credit was significantly impaired and unlikely to revive anytime soon. The implication: less lending and at higher costs. The Fed chief was referring to securitization, the process by which loans are sold to Wall Street firms that bundle them together into securities that are sold to investors. Their returns on investment come from monthly payments that consumers make on their homes, cars, credit cards and student loans.
Securitization is in a deep freeze right now because investors no longer want pooled loans, fearing defaults by consumers and businesses. This is one reason it's so difficult now for consumers to get credit to buy cars or houses. Bernanke warned that even when this process resumes, it's unlikely to be as vigorous as it was during the go-go days earlier this decade.
"My forecast would be that the shadow banking system - securitization markets - will come back, will be a substantial part of the U.S. credit system. But they will certainly, at least in the medium term, be simpler, smaller, less opaque, subject to more oversight by regulators," Bernanke said. "And those things, I think, will constrain its growth for a period of time."