IF I were still blogging, I would post a brief missive about Ben Bernanke and how he got as close as any Fed chairman would ever get to calling a recession. While he didn't use the "R" word to characterise the present state of the economy, he did note today in his prepared remarks before the Joint Economic Committee that we could see the economy contract during the 1st half of this year.
Yes, the Fed chairman who told us during the Spring of '07 that housing prices would continue rise for the foreseeable future; yes, the Ben Shalom Bernanke who told us last summer that subprime would be contained; yes, our Gentle Ben who told us earlier this year that the economy would slow but would continue to grow in '08 - conceded, with the President conveniently far away in Eastern Europe and the Treasury Secretary even more conveniently out of town for a visit to China - that we could be in for more than just sluggish growth.
Gross Domestic Product contraction in the 1st half would be the fulfillment of the text book 2 quarters of GDP contraction that so many pseudo-economic experts insist must be met before licenses can be handed out allowing the use of the word "recession". Mind you, the hypocritical two quarters GDP faction are likely mostly made up of relativistic folks where most anything goes on Wall St so long as it has a bullish bent to it, but when it comes to GDP they insist: Two quarters of contraction IS NEEDED, or YOU'RE A FEARING MONGERING BUFFOON from the Susquehanna Hat Company! Bernanke did remind however that the NBER is the official recession calling body and that they use a more subjective and complicated set of factors to call a recession not just two quarters of GDP.
It's sad that I no longer blog, otherwise I would certainly point out how foolish the recession deniers look in the aftermath of the Bernanke remarks! The recession deniers have been more than just wrong but have betrayed their failure to understand the economic data (not an easy task for anyone, I realise), and have failed more miserably in understanding the man who is Bernanke.
As an amateur Fed watcher, I quickly came to the conclusion after Ben took office that our bearded friend is worse than Greenspan in the spoken word department. While Greenspan kept everyone in head scratching mode with the use of $50 words, Bernanke speaks using simpler terms, but does a terrible job of managing expectations. Bernanke is also caught up in having to be on administration-message with Treasury Secretary Paulson (and you thought the Fed was non political and independent? LOL). Bernanke, while trying to get the gentle, sympathetic inner-Bernanke to come out while also keeping his bosses happy, has engaged in a repeated pattern understatements about the risks to the financial system. Any implicit warnings that he may have peeped have flown right over everyone's heads because they've been buried as after thoughts in Bernanke's statements.
I feel Bernanke's pain as I remember doing this type of poor expectations thing to my parents ahead of report card time many years ago. I would tell my folks things were going well, no problems - implying some A grades were on the way, but whoops - no A grades when the academic results arrived; instead a bunch of Bs and perish the thought a few Cs. My parent's wised up to my propensity for poor expectations management; I'm wise to it with my children, and in the Bernanke realm, more are becoming wise to being cautious about what Bernanke says, vs what he means and what the Fed does.
By the way, how odd was it that NY Senator Up-Chuck Schumer patted Bernanke on the head at the end of the hearing and said, "you're getting the hang of this". Ben has approval issues as well and needs a critique from Schumer? Yikes, I won't even go there.
So I take Bernanke's assessment that 1st half GDP could contract as pretty much a guarantee that the economy shall not only contract in the first-half, but shall contract materially so. I take Bernanke's talk about potential 2nd half recovery, as a guarantee that he has no idea when the economy will show true recovery. I take Bernanke's statement that he never wants to deal with another Bear Stearns near death experience as meaning the guy shall develop a twitch worrying about the next sudden blowup.
Ben looks like a pretty in-shape guy, but make no mistake about it, he has had a steady diet consisting of eating his own words.
Is the poor expectations thing premeditated? Is Bernanke purposely downplaying the risks because of something that came out of his studies of the 1930s? Maybe he believes that being upfront about the grave condition of the financial system would spur a further crisis of confidence? Perhaps, but by poorly managing expectations that turn into a worse than expected reality, confidence is further eroded, which is certainly counter productive. Solving the credit crisis is all about restoring confidence. Bernanke should listen to the Elvis Preseley song Confidence, which was on the "Clambake" movie album, co-starring Bill Bixby, to understand this concept of confidence.
At least Bernanke finally stopped being coy and made the pronouncement that could be the only expected and sad outcome of a brutal credit crunch - that in his words, 'recession' is possible. Anyone with a quarter of a clue, a modicum of honesty and smidge of an ability to handle the truth has known the reality of our economic predicament -- anyone that is but those foolish and dumb enough to cheer lead and deny reality. Score another one for those who have kept their eyes open not only to what's going on with the economy, but for also paying attention idiosyncratic habits of our present Fed chairman.
Yes, Ben said it today -- the R word -- and few were surprised. The real surprise shall come in the weeks ahead as earnings are released and as the credit crunch persists bringing on more financial explosions... but since I no longer blog, I'm sorry to say that I'll have to save those thoughts for another time.
The image above shows what Jim would call "max-pain" in the on going storm of mortgage resets. We are now in the midst of a mind numbing peak in resets of subprime mortgages. Gee, could this be why retail sales and consumer confidence have fallen off cliff? And while we're at this grim peak, remember that reset doesn't equate with instant default. Default takes 90 days to happen and then once foreclosure proceedings are started, depending on the state, it can take up to a year before the foreclosure actually happens. So even with a peak in resets now, banks and the courts will be busy for the next year dealing with whatever carnage results from this reset tsunami.
