"We don't have a precise read on why this slower pace of growth is persisting." These are his words--perhaps just an overabundance of academic caution, but a strange way, nonetheless, for the most important man in the world to phrase his thoughts.
Of course, if he had said, "Yes, we know exactly why this is happening", the reaction would have been, "Well then, do something about it!" Then he would have had to admit that he is powerless to do something about it, which is a very unbecoming admission for a world leader.
"Bernanke began speaking at 2:15, and stocks started falling at about 2:30...." Well, that makes sense. After all, when the Head Honcho admits outright (or pretends) that he's completely in the dark, the market is justified in getting a little skittish.
[Thanks to Allfancydress.com for the image.]
Then, according to this AP News article, Bernanke indulged in a little excuse fishing: "[T]he Fed blamed the worsening economic outlook in part on higher energy prices and the earthquake and tsunami in Japan, which slowed production of cars and other products."
Oh, so we have to go as far as Japan to find a culprit? Last time it was in China, with the savings glut.
Bernanke's comments seem disingenuous, as this writer suggests, especially coming as they do from one of the greatest economic intellects of our era. But just in case he's sincere, may I suggest he start looking closer to home?
Three elements possibly contributing to our current predicament come to mind:
1. The first is the phenomenon Robert Higgs describes as "Regime Uncertainty." (I did an earlier blog entry on this.) Essentially, businesses are hesitant to expand without some kind of reassurance about America's future politics. Will employers have to eliminate employees, drop health insurance, or simply join the upcoming national health system and cut profits? Will they have to pay new taxes, or consider outsourcing? Will compliance costs go up or down?
[Aside: Ignorance among academics about things happening at the ground level of business is astounding. All economics students, and come to think of it their professors too, should be required to spend one year as an apprentice in some business--any business--so that they can see how things transpire between the wheel and the road, down where the doers have to breathe the dusty air and scuttle about finding real solutions to real and, unlike in macroeconomics, solvable problems.]
2. Second is the very boom-bust process itself. As some economists have been saying, a country or set of countries cannot go on a hugely unsound leveraging binge without going through a terrible hangover afterward. The duration of the pain will correspond to the height of the crazy leveraging; and deleverage we must. The slog ahead could be long and difficult, like in Japan. (And John Mauldin [see below] calls Japan "a bug in search of a windshield.")
3. Government debt. The US is playing with fire as it blows the greatest liquidity bubble of all time on the back of the world's faith in our good credit. As the AP article states, the QE1 and 2 bond-buying programs have been "controversial. Supporters say the bond purchases have kept interest rates low and encouraged spending. Low long-term rates make it easier to buy homes and cars and for companies to expand."
The same cheerleaders argue "that those lower rates have fueled a stock rally. Since Bernanke outlined plans for the program last August, the Standard & Poor's 500 index is up 24 percent. Lower rates made stocks more attractive to investors than bonds, whose yields were still falling."
But how many asset bubbles can we blow, and how much indebtedness can the country carry, especially when we hear simultaneous chastisements from Bernanke himself about the very same debt behind the bubble? According to John Mauldin and Jonathan Tepper in Endgame, the End of the Debt Supercycle and How It Changes Everything, this explosion of debt cannot go on forever. And what cannot go on forever must therefore stop. And it won't be pretty. (This book is a very good read, by the way.)
Gold, all through this, has bode its time and held onto its glitter, which is fine with me. I don't know whether it's an accurate reflection of the over-issuance of the dollar, or of coming price inflation, or current asset bubble price inflation, or of international insecurity, or all of the above; whatever it is, it's still my best friend. And I'll go with my golden instincts over Bernanke's uncertainty (feigned or real, but certainly justified) any day.