In Private, Bernanke Says First Six Months Of This Year Will Be "Bad"

January 22, 2008
In Private, Bernanke Says First Six Months Of This Year Will Be "Bad"

We're told by those who've heard him that he says the first six months of this year will be "bad," an adjective that some interpret this as signaling there is better than a 50-50 chance for a recession. Even worse, the former Princeton prof believes the ensuing recovery will be "weak" because of persistent problems in the housing market that will result in subdued consumer spending. We checked in with his office, which says it doesn't comment on what the boss says in private. But it's certainly not comforting news considering that his recent public testimony was a bummer, like when he told Congress last week, "Recently, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced ... in particular, a number of factors, including continuing increases in energy prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008."

Bernanke presses the panic button

January 22, 2008
Bernanke presses the panic button

Given the clear connection between Tuesday's rate cut and global market turmoil, it is hard to avoid at least one conclusion. Bernanke has proven, once and for all, that juicing the stock market is now considered Job No. 1 for the Federal Reserve Bank. The material effects of rate cuts do not show up in economic growth statistics for months or even years after their enactment. By making an emergency "inter-meeting" cut a mere eight days before its regularly scheduled meeting,
Bernanke is conducting economic policy in order to appease market psychology. The fragile psyches of Wall Street traders who played such a pivotal role in creating this mess by romping through the derivatives wonderland, are now in control of government strategy.

How bad can it get? Economist Nouriel Roubini, who has been preaching doom for years, declares that the oncoming "recession will be ugly, deep and severe, much more severe than the mild 8-month recessions in 1990-91 and 2001." Dean Baker, co-director of the Center for Economic and Policy Research, observes that the housing bust "is creating the largest financial crisis since the Great Depression and might well lead to the most serious recession since World War II."