2011/06/27

Mike Whitney: More Treachery at the Fed?

At the end of today's FOMC meeting, there will be a few surprises: The "recovery" has stalled, and the Fed can't decide whether we have just hit a "soft patch", or we are going to hit something more serious. If it is indeed more serious, the Fed will need a contingency plan to start the economy. Will we have another round of Quantitative Easing, rate caps on short term treasuries, or something else altogether? The financial media want to know, and only Ben Bernanke knows the answers. First quarter growth of our economy is currently an anemic 1.8 percent, and economists are now shaving their estimates for Q2. Some think that the Tsunami in Japan, as well as debt problems in the euro-zone are mainly responsible for the poor growth, but that does not explain the sharp downturn in hiring, manufacturing, housing and consumer confidence: The US is experiencing a drop-off in demand at the worst possible time, just as Obama's $800 billion fiscal stimulus and Bernanke's $600 billion monetary surplus are running out of gas. That means even less support for an economy that can barely stand upright as it is: Here is an excerpt from an article by Nouriel Roubini with a rundown on the economy: "There are good reasons to believe that we are experiencing a more persistent slump - the factors slowing US growth are chronic: These include slow but persistent private and public sector de-leveraging, rising oil prices, weak job creation, another downturn in the housing market, severe fiscal problems at the state and local level, and an unsustainable deficit and debt burden at the federal level. If what is happening now turns out to be something worse than a temporary soft patch, the market correction will continue further, thus weakening growth as the negative wealth effects of falling equity markets reduce private spending. More and more mainstream economists have joined Roubini in thinking that recent sluggishness is more than a "soft patch."

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