Fed Chair Bernanke Foresees Jobless Recovery For Years Out

America’s unemployment rate will remain well above 7 percent throughout President Obama’s first term, Ben Bernanke told Congress yesterday , warning that “the economic outlook remains unusually uncertain.” The Fed chairman’s cautious tone, and his failure to call for immediate action to bolster the economy, sent jitters through Wall Street , with stocks moving steadily downward over the afternoon. Bernanke told the Senate Banking Committee that the Fed remained “prepared to take further policy actions as needed,” but stopped short of detailing possible fixes or the criteria he would use to determine their necessity. Mr. Bernanke’s statement that the Fed had no imminent plans to go beyond its current strategy of keeping short-term interest rates exceptionally low pushed stock prices down.

In presenting the Fed’s semiannual monetary policy report to Congress, Mr. Bernanke said that it would take “a significant amount of time” to restore the 8.5 million jobs lost in the United States in 2008 and 2009, and that “the economic outlook remains unusually uncertain.”

He also warned that financial conditions, particularly the European debt crisis, had “become less supportive of economic growth in recent months.” Yes, that’s right, because as written in an earlier posting here, the over-hyped market reaction to the Euro-nation’s over-hyped debt has led the Europeans to choose the incorrect course of austerity budgets. It has been said before, and it will remain ever-true: “Nations can not save their way out of a recession/depression.” It’s that simple.

Too many political and economic fearmongers and ideologues here, in the U.S., preach the same fearful austerity absurdities. Just listen to the republican explanation for refusing unemployment extensions: “We have to pay for it with cuts… our debt and deficits can’t be sustained… wah!”

Well, is it true? Not so much:

Bernanke’s inaction is perhaps due to the fact that short-term rates have already been cut almost to zero, so the remaining effective options are less-conventional remedies like buying up mortgages and Treasuries to push down long-term rates. Already, the Feds have purchased nearly $2 trillion in mortgage-backed securities and Treasury debts to push long-term rates down. Well, there remains more of these instruments out in the market to absorb. Some people believe that to be too risky, that it would be a high-risk gambit and could easily backfire. It is NOT too high a risk, in these times. The spectre of inflation is nearly dead, and the debilitating beast of de- or dis-inflation is arising. See past inflation posts as well as today’s other post.

Bernanke is an expert on depression economics and is the absolute right man at the Fed for our times, yet I do not understand why these economic-historians of the Great Depression haven’t seen that “flushing” debt is the way forward. Either cancel the debt (buy up ALL student loans and cancel them and mortgages too if that’s not enough) OR start advancing the money supply by buying up or “monetizing” our national debt. History shows it works.

Speaking of history and our current struggles, it’s been said… reminiscent of Cal Coolidge: “When people are thrown out of work, unemployment results.”

And… the banks we all rescued from themselves are now so risk-averse that lending has come to a virtual halt — which means a virtual halt to economic expansion and massive unemployment… Oh! Just as described by Bernanke, above. And the circle is complete.

Don’t believe it? Check out these charts:

Oh, my! Isn’t that a correlation, we see?

Yup! Now that we’ve figured that out, perhaps we could move on to making up for this slack and doing something positive and lasting? Something which stimulates jobs for labor and white-collar, long-term investment in our futures, and advanced technologies, while contributing to improving our societal lives, the environment, and resource efficiencies? How about taking a few hundred billion from the needless war efforts (failures) and start building an advanced high-speed, national passenger rail system? After all, we’ve spent over $1Trillion on two wasteful (both in money and lives) wars since 9.11 with little to show. Time to cut loses and rebuild our nation’s future.

More specifically to that point, it would cost $77.7 billion to bring the nation’s mass transit systems, bus and rail included, into a state of “good repair,” according to a Federal Transit Administration study released June 21, 2010. Now, add on nation-wide high-speed rail.

While most of the $77.7 billion backlog can be attributed to rail, more than 40 percent of the nation’s buses also are in poor to marginal condition. In addition, an annual average of $14.4 billion would be required to maintain the systems, according to the study.

“Transit remains one of the safest, most economical forms of transportation, but this report shows the clear need to reinvest in our bus, subway and light-rail systems,” U.S. Transportation Secretary Ray LaHood said, in a news release. “As a nation we must lead when it comes to infrastructure development and commit ourselves to rebuilding America.”



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