Two and a half years ago, Christina Romer, then still employed by the Obama administration in the position of Chair of the Council of Economic Advisers penned "The Job Impact of the American Recovery and Reinvestment Plan" - a report predicting the impact of a fiscal "stimulus" that took out $787 billion from the pocket of American Taxpayers (subsequently discovered to
) and put that money...somewhere. We are not sure where, because according to a chart now made legendary for its complete failure to predict the future, it sure did not go into creating jobs. Below we present the original chart that made the January 10, 2009 presentation, and superimpose upon it the reality of the past two and a half years. It is simply stunning. And while we are here, and discussing the abysmal failure of QE2 (the impending arrival of QE3 notwithstanding), it is amusing to hear the whimpering of the likes of one Richard Koo, who is now claiming that all along the money from the Fed's monetary stimulus should have been invested in the form of a
one. Well, Dick, below is the impact of your fiscal stimulus....
it also includes the impact of $2 trillion in incremental monetary stimulus.
both fiscal and monetary stimulus has now missed the worst case projection for US unemployment for 30 months running. Here is the simple truth: both monetary and fiscal stimuli are abysmal failures, when the economy is mean reverting to a state where it was hijacked from courtesy of 30 years of "great moderation" - and there is nothing that can be done to stop it. Correction: there is one thing - the Fed can destroy the dollar in its attempt to disprove simple physics. And, ultimately, it will.
Federal Reserve Chairman
Ben S. Bernanke said the central bank should maintain record monetary stimulus to boost an “uneven” and “frustratingly slow” economic recovery.
“The economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed,” Bernanke, 57, said today in a speech to a conference in Atlanta. “Until we see a sustained period of stronger
job creation, we cannot consider the recovery to be truly established.”
Recent data showing weakness in the economy, including a rise in the
unemployment rate to 9.1 percent in May, has increased the odds the Fed will hold the benchmark interest rate near zero into next year. At the same time, Bernanke and his fellow policy makers plan this month to complete a $600 billion bond purchase program, and they’re discussing the tools they’d use to withdraw stimulus, according to minutes of their meeting in April.
Bernanke said that while the recent increase in inflation is a “concern,” he doesn’t see “much evidence that inflation is becoming broad-based or ingrained in our economy.” Still, “the longer-run health of the economy requires that the
Federal Reserve be vigilant in preserving its hard-won credibility for maintaining
price stability.”
Treasury two-year note yields dropped two basis points, or 0.02 percentage point, to 0.4 percent at 4 p.m. in New York, the lowest level this year. The Standard & Poor’s 500 Index fell 0.1 percent to 1,284.94 after rallying as much as 0.8 percent.
‘Upward Impetus’
If commodity prices stabilize, “the upward impetus to overall price inflation will wane and the recent increase in inflation will prove transitory,” Bernanke said. Inflation is being restrained by “the stability of longer-term inflation expectations” and “weak demand for labor,” he said.
The personal consumption expenditures price index, minus food and energy, rose 1 percent for the 12 months ending April. That’s below the longer-run inflation goal of 1.7 percent to 2 percent for the PCE index forecast by policy makers in April.
The breakeven rate for five-year Treasury Inflation Protected Securities, the yield difference between the inflation-linked debt and comparable maturity Treasuries, has fallen to 2.05 percentage points from 2.47 percentage points on April 29.
Breakeven rates are a measure of the outlook for consumer prices over the life of the securities. The measure has climbed from 1.24 points on Aug. 27, the day Bernanke signaled the Fed may embark on a second round of large-scale asset purchases during a
Jackson Hole,
Wyoming, speech.
Job Openings
Job openings in the U.S. declined in April for the first time in three months and payrolls grew in May at the slowest pace in eight months, according to Labor Department figures released since June 3. The 54,000 rise in jobs followed a 232,000 gain in April and was below the 165,000 median increase forecast by economists in a Bloomberg News survey.
“Recent indicators suggest some loss of momentum,” Bernanke said. “I expect hiring to pick up from last month’s pace as growth strengthens in the second half of the year, but, again, the recent data highlight the need to continue monitoring the jobs situation carefully.”
Manufacturing grew at its slowest pace in more than a year in May, according to Institute for Supply Management data released last week.
Consumer spending, which accounts for 70 percent of the economy, rose less than forecast in April as households felt the pinch of grocery and energy costs, a Commerce Department report showed.
Oil Prices
Oil prices have climbed 160 percent since February 2009, while non-fuel commodity prices gained about 80 percent, Bernanke said in his remarks. The increase in commodity prices reflects “strong gains in global demand that have not been met with commensurate increases in supply,” he said.
The chairman rejected criticism that the Fed’s actions have pushed down the foreign exchange value of the dollar, and thereby boosted the price of commodities, saying “many factors other than monetary policy affect the value of the dollar.”
Commodities as tracked by the 24-member Standard & Poor’s GSCI Spot Index have rallied about 9 percent this year, led by gasoil and
Brent crude.
Bernanke said that waning fiscal stimulus will also exert drag on growth. He warned against sharp cutbacks at a time when the recovery is still fragile, while urging lawmakers to develop a long-term plan for deficit reduction.
Long-Term Plan
“A sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery,” Bernanke said. “Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation.”
Policy makers have few options left to respond to accumulating signs of a slowdown after their second round of asset purchases sparked the harshest backlash against the central bank in three decades.
“We’ve gotten inconsistency, hesitancy and unevenness” in U.S. economic growth, Atlanta Fed President
Dennis Lockhart said today in a speech in
Charlotte,
North Carolina. “I’m troubled by what you might describe as a lack of conviction in this economy.”
Two regional Fed bank presidents critical of the so-called quantitative easing program --
Richard Fisher of
Dallas and
Charles Plosser of Philadelphia -- reiterated their opposition to additional stimulus in comments yesterday.
The central bank has “done enough if not too much” to spur growth, Fisher said in
New York, while Plosser said in Helsinki that an exit from stimulus should start “long before” a recovery in the U.S. job market is assured.
“Somewhat tighter monetary policy is possible by the end of the year,” Plosser said. Fisher and Plosser are both voting members of the
Federal Open Market Committee.
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