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Guest Post: Be Careful Jumping On Bernanke's Bandwagon
Via Lance Roberts of StreetTalk Live,
This past Tuesday all eyes were on Bernanke as he gave his speech at the Economic Club in New York. Initially the markets sold off as no mention of further easing programs were mentioned but rebounded on his closing remarks. Out of the entire speech the media, and the markets, grabbed onto Bernanke's optimism about economic growth in 2013 as shown below.
Ansuya Harjani reported for CNBC: "In a speech delivered at the Economic Club in New York on Tuesday, Bernanke said 2013 could be a very good year for the U.S. economy if politicians reach a deal to avoid the fiscal cliff.”
Joe Weisenthal for Business Insider: "He correctly identified the central story right now: Which is that the economy seems to be on the verge of a breakout, and yet the Fiscal Cliff remains a major threat which he doesn't have the power to counteract."
It is true that the current economic condition, as weak as it has been, has done better than previous economies in history that experienced a financial crisis. As Mr. Weisenthal recently pointed out:
"It's of no comfort to the millions of Americans who are unemployed, but the fact of the matter is that the US economic recovery has been extraordinary. From the dark days of late 2008/early 2009, the economic recovery has been surprisingly strong, given the crash conditions that went into the slump. As this chart from Carmen Reinhart and Ken Rogoff makes clear, the US GDP recovery is well above historical systemic crises."
However, while the U.S. economy has recovered somewhat from the recessionary lows, and did not fall into a technical "depression," it is important to remember the vast amount of monetary stimulus thrown at it since 2008. The table below shows most of the various bailout and financial support programs that have been instituted to bolster the financial markets, and subsequently the economy, since 2008. This, of course, doesn't include the latest Large Scale Asset Purchase programs (QE3) which is currently injecting $40 billion a month of liquidity into the system.
The point here is that it took injecting nearly half of the worlds current GDP into the financial system to offset the drag of the financial crisis, modestly boost employment and keep economic growth only slightly above flat line.
Nonetheless, Mr. Bernanke's optimism going into 2013 was welcome news - as long as you don't think about it too much. Of course, the question that was not asked, but should have been, is "exactly what do you mean by a good year?"
That question is rather subjective. Is it 4% economic growth as hoped for by the George W. Bush Presidential Center? Or is it simply something better than the current 1.7% run rate for 2012?
The chart below shows the annual real (inflation adjusted) growth of the economy by decade going back to 1950.
As you can see, since 1950, the average annual growth rate of the economy has been roughly 3.1%. As I have explained before, when it took less than $1 of debt to create $1 of economic growth the economy grew above the long term average. However, as that debt/economic growth ratio increased, currently more than $5 of debt, the average growth rate per decade fell.
With debt levels continuing to spiral higher, which acts as a governor on economic growth due to the debt service requirement, the question of a return of economic growth becomes much more cloudy.
The problem for Bernanke comes down to his inability to provide realistic economic forecasts. The Fed began making long range economic forecasts in 2011 which are published quarterly.
As I wrote in the article "The Fed And Goldilocks Economic Forecasting" when it comes to the Fed and their economic forecasts they have consistently overstated economic strength. The chart, and table, below shows the Fed's economic forecasts and the eventual adjustments to reality.
Bernanke is once again pushing out very optimistic projections for 2013. He is also well aware that these numbers will be revised down in future quarters.
Take a look at the table above. In January of 2011 the Fed was forecasting economic growth for 2011 at 3.7% which turned out to be 1.7%. The 2012 prediction of near 4% growth is currently at 1.8% and the 2013 prediction has already been revised from 4% to just 2.9%. If the economy hits 2.9% growth next year that would indeed be a "very good year" for the economy coming off the current state of growth.
However, with economic growth currently in a declining trend, earnings deteriorating as the Eurozone slips back into recession, and employment and wages likely to be negatively impacted - that optimistic forecast will be revised lower. Furthermore, the raft of bailout and stimulus programs, enacted during the first two years of the current Administration, are now fading out of the system. The lack of further stimulative support, combined with rising taxes in 2013, will impede economic growth further.
The problem for the Federal Reserve is that they face a severe challenge, when communicating to financial markets and media, which is the creation of a self-fulfilling prophecy. Imagine that following an FOMC meeting Bernanke stated: "The policies and actions that we have implemented to date have done little to curb economic weakness. The economy is in much worse shape that we have previously communicated as the transmission system of Fed policy through the economy, and the financial markets, is obviously broken."
The immediate reaction to such a statement would be a complete meltdown of the financial markets. Such a decline in the financial markets would negatively impact consumer confidence which would subsequently throw the economy into a recession. Therefore, communication from the Federal Reserve must be very guided in its approach - not too hot or cold. This "goldilocks" approach works to create a "glide path" to the Fed's destination while giving the financial markets and economy time to adjust to the incremental adjustments to forecasts. Therefore, when the media reporters grab onto a sound byte that the "next year is going to very good" it should be taken within the context of the trend of the economic data and what is driving it.
The Fed has been slowly guiding economic forecasts lower since 2011. The reality is that the long range forecast of 2.6% economic growth is not a boon of economic prosperity, corporate profitability, increasing incomes or a secular bull market. It is also not the "death of America" or the return to the stone age. What is important to understand, as investors, is the impact on investment portfolios, expected real rates of returns and the realization that higher levels of market volatility, with more frequent "booms and busts," are here to stay.
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We should have required "Presumption of Freedom, Presumption of Innocence of American Citizens Sensitivity Training", administered through human resource departments of all government agencies.
These classes will include the citing of law that backs up and reinforces the training topics covered in the lessons.
I'll have more on this subject as I develop my new realm of education for government employees.
I'm starting this New Entrepreneurial business today and invite you to participate and join me in this endeavor.
Earlier we had some lame fictional "crisis video" and now we have a front page "imagine if" fake Bernanke quote. WTF? Is this what we're down to? Fake bad news? This is shark jumping at its finest.
When there's not any actual bad news, make some up?
No news is good news, but no good news is bad news, so therefore fake bad news is still bad news.
Reporters union says so.
"With debt levels continuing to spiral higher, which acts as a governor on economic growth due to the debt service requirement,..."
Well, this quote seems to be factual, so I will comment on it.
Why doesn't Benanke just lower interest rates to zero then, and see how it goes? Let everyone get money from the bank for 0% interest too. Hows that for stimulus?
Just pancake the whole yield curve to zero. Lets get it over with.
They will be coming after Social Security and your 401k's to pay the bills
Multi-Millionaire Goldman Sachs CEO Blankfein Says Americans Should Work Longer and Receive Fewer Benefits
http://frontporchpolitics.com/2012/11/goldman-sachs-ceo-americans-should-work-longer-receive-fewer-benefits/
Private Savings Accounts May Be "On the Table" in Fiscal Cliff Talks
http://www.nationalseniorscouncil.org/
Republicans About To Fall For A World Class Social Security Bait-And-Switch Con
http://www.forbes.com/sites/lawrencehunter/2012/11/19/republicans-about-to-fall-for-a-world-class-social-security-bait-and-switch-con/
Here in Canada, after they secretly bailed out the banks, they quietly raised the retirement age and nobody even fucking flinched.
What do you expect from a bunch of Queen humping, socialist, puck monkeys.
http://www.cbc.ca/news/business/story/2012/04/30/bank-bailout-ccpa.html
http://www.canadianbusiness.com/article/77125--retirement-age-in-canada-...
FUCK THE FED! This market will melt down. Ponzis always do.
The fed is floating all boats for 4 years. Any water left. Check the depth
I like to think of the FED as the emptier of all lakes. No water, no-one sinks and everyone goes thirsty.
As to the moderated comments by the FED. Please. It isn't just the FED but just about everyone on the damn planet that are way beyond the glass is half full mentality to "there is still water left"!!!!! Absolutely, positively positive putting the lipstick on every rotted pig (including themselves) and going out to party at Bernies with the other rotted pigs. As long as the pig has lipstick we all can still get a 'blow job' so it's all fine and dandy.
Thank you but I'll have another shot of Denial with Apathy on the side, leave the bottle while your at it. And don't forget the ice cubes because everything is better 'cold' and boxed.
F'n hillarious S&P at 1410 - AGAIN and all the mo-mo ro-bo-tv-titty bots can start shaking their ass pomme pommes to lull those still playing bull into the bear den. The forecast tomorrow is it'll be just like today, until it isn't. It's too dang bad everyone is so high on Denial we as a society will be totally caught with our pants down, sqeezing a rope only to find someone put a fan in our shitter.
Most of the world already has interest rates low enough to jump start the grateful dead from the time of Jesus yet no-one seems to have a hard on for the economy, and the stars in the eyes are starting to look like the void of emptyness. We have already gone past the point of return since the US and virtually every other western economy is starting to sink under the weight of debt service (i.e. debt slavery) and all anyone can think of to solve the problem is to create more debt.
Junkie is as junkie does. Shoot up - go for that one last 'blast'. Only 1 month left before we find out if the Mayans had any brilliant future insight. I had this dream of a bright meteor streaking the sky and told everyone to hit the deck. No sound for like 10-20-30 seconds. People started to get up and I said "wait for it" - then a loud but distant 'boom' minor shaking. I woke up thinking the Armageddon scenario (as in the movie) easily could be upon us - and we simply wouldn't know it until the last minute. Makes it easy though because people don't have much time to worry, and I've grown tired of worrying about global killers, we have a lot more trouble with the 'global troublemakers' already here.
End of Line
You were doin' fine till that last paragraph, pard.
1) If the Mayans really had had any "brilliant future insight", I rather suspect they'd have been better off using it to prepare for the 200-year drought that brought about whatever forces it were that destroyed their civilization, no?
2) "Dreams", dude? Srsly? I once had a dream I fucked the daylights out of Cindy Crawford, and while it was just fantastic! (she cried when she came, and then thanked me and called me a Living God), when I woke up, like most dreams, the only *tangible* impact it made was that I hadda wash the sheets.
F the Politicians there I fixed it for you because with out them there would be no Fed
The U.S. Constitution: Tool of Centralization and Debt, 1788-Today
http://www.garynorth.com/public/7833.cfm
Bubble burst after sometime.
http://www.freefdawatchlist.com/p/live-chat.html
We all knew that good was bad 6 months ago. It is now past the point of rhetoric. It just simply does not wash anymore. Quite frankly, its getting cringeworthy.
It is happening. Those who have benefitted from the fraud an misallocation of resources (mostly to themselves) will try to continue having their cake and eating it too.... but in reality all that has been happening is that they have been eating their cake and then taking cake from others and then eating that too.
Eventually, first people stop giving them their cake and the fraud benefactors then use force to take cake ... then they just run out of cake... and no pie either.
if the truth will not work then do not tell it....
Why not? It's obvious the OIS market is "Draghi put" Look at the parabolic e/u meltup! It's a "spit swapping" bailout!
phuck the Jew. (apologies for offense but after a while we're just "beating a dead horse" here. "let's talk energy policy." it's not complicated: hydro, coal, nuclear, natural gas, oil (in order of importance.) simply put "we're wasting trillions." is it that hard to get on the right path? NOT AT ALL. by and large the whole "electrical grid" thing is a total boondoggle. i would think in terms of "scrapping the entire thing." coal should be used for home heating. all oil burning furnace's should be banned. immediately. all nuclear power plants should put forth to the Federal Government a plan for decommissioning over the next 40 years. We should have ZERO "mega nukes" by 2060. the Government should start mandating a "solar standard" for all electronic devices....and declare as "wasteful" the use of any battery in anything smaller than a laptop and put an extra "battery tax" on the devices. (100 percent sounds good.) since hydro is 100 percent renewable that should receive the most favorable tax treatment possible. so should wind and "personal solar." (tax free at the retail level.) the President should mandate a fuel WEIGHT surcharge on cars...just as is done with Commercial trucks. "You have to pay for the weight" would be a powerful incentive to actually "think" about that widget with wheels for a change. and blah blee blah blee blah blee blah. and blur blee blur blee blur. etc and so on. hurrumph.
call the prez a nigger while you're at it. wtf is wrong with people here? i'm a jew and i'm a nigger and i promise you that in my face you would not make a peep.
He's a disabled vet. Of course he's not going to use a racial epithet against his former boss.
Hey DV, you forgot the most renewable resource on the planet. Wood. You can take your tree branches, used popsicle sticks, and klan fliers and burn them in a wood stove to heat your own arse.
The CO2 released was all captured from the air by photosynthesis, so it's carbon neutral.
So you're going to kick the ass of a disabled vet? You are a badass.
disable ... the problem is not the wrong regulation and energy incentives, the problem is the loss of a real free market because of government intervention for political ends. Frackable american natural gass is unlimited with fewer tradeoffs than other energy sources. I can not think of a time politicians have made wise choices long term. Sad Ron Paul did not gain traction as a leader.
I thought following Bernank meant tasty Christmas dingle berry treats. Does this mean a fruitcake is in order? Ben, continue to print. The slaves need you..
/Hahahahahhaa
not adviseable to follow Bernanke's Mad Contrarian Hedge Fund as it's designated to follow Wall Street bankers and the US Govt buying up all their crappy nappies, from toxic mortgages to worthless long-end US Treasuries
the Fed stinks from every angle
The sooner that sucker is put behind bars the sooner this country can get going again.
Who, Obama?
How about posting a chart of the various bonuses and commissions garnered from these 'bailouts and financial stability' injections?
the beast is on the gobble
and all that matters is we're all headed for it's belly
http://youtu.be/ntmthFyaYzY
The Fed transmission system is fully functional, this shows how clueless Bernanke is. The Fed is transmitting back in time to when commercial banks were counterfeiting money themselves through fraudulent activities.
I assume that by quoting the most idiotic writer on BusinessInsider, Joe Wiesenthal, that this article is satire.
Repost. Sorry.
I can promise you that there is no one on this site jumping on Bernanke's band wagon. That guy is loathed by the intelligent crowd here.
Easy....just change them there numbers so's that them curvey things start bendin' the other way. Fixed.
ZIRP4EVA
QE4EVA
MARKTOFANTASY4EVA
Until Ben starts to comment on ending these three things, then all his conjecture about improving conditions are total bullshit.
The colossal, historic size of the Feds policies values in monetary terms the colossal failure of the Fed and the central banking system ..indeed the wider banking system too which the Fed supposedly 'oversees' and indeed back-stops.
QE = Quantative Errors
4 years of patches and yet still Fed crones cannot see an end to the ongoing programs of intense surgery and heavy-duty drip-feeds to their terminally ill patients on WS and in DC
Yet the Fed pontificates as if it's the 'saviour' of the economy when in fact it's nothing but a clown dripping in failure with its 2 zombies comatose on the table no better now than they were 4 years ago.
End the Fed ...this is way beyond a sick joke of a system for society.
Well, the Fed has also financed a massive increase in federal spending, growing the federal government. Central planning isn't just about monetary policy, it's an attempt to control everything.
The refusal of the general public to understand what is coming down the road [economic collapse] if we continue to expand government and encure trillion dollar deficits is disheatening
I have family members who are well educated and intelligent who get upset if the subject is even braught up. they just think the status que can go on forever
I'm sure most turkeys are upset if anyone suggests the farmer won't be their best friend forever. How'd everyone enjoy the leftovers today? <burrrp>
Who knows, maybe your relatives are right, and maybe next year's turkeys will have their status quo go on forever.
Or you get asked to take off your tin foil hat... LOL!
I don't even discuss the subject anymore with those family members that disagree with me. Makes the holiday's much more enjoyable.
Bernanke is cositent, he is always wrong. He refuses to admit that he does not know how to do his job and says the system is broken. His theories are just plain wrong.
Yeah....Berrnank....he was dead on in his housing forecasts in 2007....
Yeah sure...fuckface...we'll believe you now <fuckin SARC>
Clear the markets Bitch Ben!