It seems a little inappropriate, yet rather symbolic, that as millions of Americans continue to struggle with the loss of their jobs and homes, the financial elite are ensconced in a bubble of luxury featuring all the amenities that Jackson Hole, Wyoming has to offer; while, at the same time, the president and his family are enjoying the pleasures of one of the nation’s most exclusive playgrounds - Martha’s Vineyard.
And, as for the members of Congress? Well, let’s face it, they’re not in Washington and we all know that between their salaries and their war chests of “donations” from the special interests, they’ve got plenty of moolah to play with - so you can draw your own conclusions.
At Jackson Hole, Fed Chairman Ben Bernanke told the bankers who weren’t playing golf or relaxing at the spa that the Fed stands ready to “do all that it can,” to prevent a second recession from developing. This followed a government announcement that the nation’s second quarter growth rate had fallen from its preliminary estimate of 2.4% to 1.6%. And that, in turn, had followed an already declining GDP trend featuring a 5% growth rate in the fourth quarter of last year and a 3.7% rate in the first quarter of this year.
But, let’s take a closer look at exactly what Bernanke meant when he said the Fed would “do all that it can.” In his own words, the steps, if they end up being taken, would primarily involve buying more government bonds to bring down long-term rates, and committing to keep short term rates at or near zero for a longer time than the “extended period” that has already been promised.
So, what this all means for Main Street is virtually nothing - nada - zip. It is true that mortgage rates might fall slightly from their present record-low levels, but the now-expired government program to offer tax credits to homebuyers has obviously drained the housing market of any meaningful demand. And as far as providing lower interest rates is concerned, does anyone in their right mind actually believe that the banks would pass along lower charges on installment credit to John Q. Public?
So far, as rates have fallen through the floor for the financial sector, the only pass-through to the public has been an escalation in charges related to installment debt, including credit card obligations.
Indeed, the subject of jobs was hardly mentioned by Bernanke, except for the statement that the Fed’s move to lower rates even further might be triggered by another couple of months of job losses. In other words, if corporate America continues to dump jobs, the Fed will reward it with even lower rates that it can take advantage of to secure long and short term debt.
Not surprisingly, Wall Street reacted to the news out of Jackson Hole with nothing less than euphoria. The Dow surged 160 points on Friday and the futures are looking good, at this time, for Monday morning’s market opening.
Bernanke also said that the Fed couldn’t do the job alone, an obvious reference to the fact that the prior stimulus package has lost its impact and Congress should step forward with its own plan to jump-start a renewed recovery. However, we all know that ship has not only sailed away but that it has been attacked and sunk by the deadlock on Capitol Hill.
Meanwhile, the conventional economic wisdom being echoed by a procession of economists on such relatively neutral stations as Bloomberg News and CNN is now projecting seven to ten more years of high unemployment and slow growth.
So, considering the eerie similarities to the 1930’s, all of this seems to beg the big question: At what point should this become known as the Second Great Depression?
Dave McGill, News Correspondent
Dave’s column, "The Contrarian," generally published every Friday, to Gather Essential News and other groups will sometimes present a contrary view to various aspects of the news, or an alternate take on the conventional wisdom of the day. It will also often appear on other days of the week
Dave has been a senior officer of an eastern insurance company, involved in economic projections and investment strategy, president of a Midwestern mortgage banking company, and a financial consultant in Southern California, serving clients in the field of commercial real estate development.
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