Bernanke to Congress: We're much closer to destruction than you think

[Zippyjuan]

As Europe has seen with their austerity programs, any sharp cuts in government spending means more people losing jobs and thus higher unemployment. That means lower government revenues from taxes and higher expenses for things like unemployment insurance which means you need to make more cuts. That is why they would like to move slowly in reducing the budget deficit. That they are gridlocked on how to do any reductions in the first place (Republicans want only cuts, Democrats want more taxes raised) will not help them make any progress in either direction so things will likely continue to float along as they are.

 

[WilliamC]

As Europe has seen with their austerity programs, any sharp cuts in government spending means more people losing jobs and thus higher unemployment. That means lower government revenues from taxes and higher expenses for things like unemployment insurance which means you need to make more cuts. That is why they would like to move slowly in reducing the budget deficit. That they are gridlocked on how to do any reductions in the first place (Republicans want only cuts, Democrats want more taxes raised) will not help them make any progress in either direction so things will likely continue to float along as they are.

This ignores that eventually all bubbles will burst, the gridlock will end when either the system is reformed or chaos overtakes it.

It won't just 'float along' forever, but I don't know exactly when our world economic system will crash (i.e. the plastic stops working and short term credit disappears like it almost did in '07)



But without systemic reform, crash it will

 

[Zippyjuan]

Bernanke seems to feel that the economy is finally doing well enough to finally consider reducing Federal spending. In the earlier years of the economic crisis he was against any cuts and wanted higher spending to help the economy out. This is a definate change in his position.

 

[WilliamC]

And when has Bernanke been right about his predictions before?

Oh, that's right, he hasn't.

The Fed is no longer in control of much of anything that I can tell, except being able to hyperinflate.

 

[Black Flag]

Read he said:
"Warning that our nation's fiscal health has deteriorated appreciably since the onset of the financial crisis and the recession, Bernanke called upon lawmakers to confront the long term fiscal challenges sooner rather than later. If lawmakers don't confront them, they'll find themselves confronted by them."

He will not hyper-inflate. That is his warning. He just said "Guys, one day I will not print money to buy your T-bills, and then you will really have problems"

 

[anaconda]

I have reserved , one bottle of good wine in my stash of 15 bottles

Varietal? Producer? Vintage?

 

[DerailingDaTrain]

It's a year old? Damn. How close are we to destruction now?

 

[anaconda]

It's a year old? Damn.

That's what I thought at first but I think he said it again just recently.

http://www.conservativeactionalerts...h-closer-to-total-destruction-than-you-think/

Correction. this apparently DOES refer to Feb. 2011. Sorry. For what's it's worth, here's the text of a speech by Ben earlier this week:

http://www.federalreserve.gov/newsevents/speech/bernanke20120409a.htm

 

[LibForestPaul]

As Europe has seen with their austerity programs, any sharp cuts in government spending means more people losing jobs and thus higher unemployment. That means lower government revenues from taxes and higher expenses for things like unemployment insurance which means you need to make more cuts. That is why they would like to move slowly in reducing the budget deficit. That they are gridlocked on how to do any reductions in the first place (Republicans want only cuts, Democrats want more taxes raised) will not help them make any progress in either direction so things will likely continue to float along as they are.

please explain and give examples..
specific European country...
specific program...
specific unemployment...
thx!

 

[Zippyjuan]

please explain and give examples..
specific European country...
specific program...
specific unemployment...
thx!

How about Paul Krugman as a source?
http://www.thestar.com/opinion/edit...an-led-austerity-may-smash-the-european-peace

More than half of Greece’s small businesses expect to declare bankruptcy soon, and a quarter of a million jobs may vanish in 2012, with only one worker hired for every seven laid off.

Just as those numbers can’t be ignored, Spain’s dilemma can’t be candy-coated. It’s the euro zone’s fourth largest economy. Its GDP slipped 0.3 per cent in the fourth quarter and will worsen this year, as will its astounding unemployment rate of 23 per cent. Five million people are out of work.

At what point does unemployment, especially in European nations with younger populations, spur violence and even government overthrow?

At what point will the politicians, bankers and economists sandpapering Europe with what they call austerity, what the theorist Jan-Werner Müller in the London Review of Books calls “ordoliberalism” (state-supervised neo-liberalism) and what the Nobel Prize-winning economist Paul Krugman calls simply wrong, realize that they’re making things worse?

“Slashing spending in a depressed economy depresses the economy even more, and if you don’t have to, you shouldn’t do it — you should wait until the economy is stronger,” Krugman wrote in his blog last week, as he does virtually non-stop now. He even characterized Europe’s self-destructive tendency by quoting the classic — meaning, still funny — British comedy Yes Minister. “We must do something. This is something. Therefore we must do it.”

And that something is criminal folly, Krugman writes.

As far as the economy is concerned, the government is the same as any other company. It can hire or fire workers. When budgets get cut, that means that people lose their jobs and unless there are already jobs in the economy for them to go to (and there aren't) then those people get added to the numbers of unemployed. Unemployed aren't getting paid (unless it is unemployment insurance which would be a government expense) and that means no income or social security taxes being paid by them (Government revenues). Their consumption goes down too since they don't have money to spend so sales taxes (usually state and local revenue sources) go down. And since these people aren't buying as much, the places they used to shop at see their business decline and they need less help as well so others lose jobs or hours of work as well.

http://www.reuters.com/article/2011/10/18/us-greece-unemployment-idUSTRE79H1TE20111018

(Reuters) - Greece's jobless rate rose to 16.5 percent in July, its second-highest level on record, driven by EU/IMF-imposed austerity measures which have plunged the economy into its fourth consecutive year of recession.

Data from national statistics agency ELSTAT on Tuesday showed unemployment rose from 16.0 percent in June as job cuts in the wider economy outweighed a rise in seasonal tourism.

The reading -- exceeded only by the 16.6 percent rate recorded in May -- was sharply higher than in the same period last year, when it stood at 12 percent. The number of the unemployed grew by more than a third to about 820,000. Greek unemployment figures are not adjusted for seasonal factors.

"The pace of decline in employment in basic sectors of the economy, such as construction, retail and wholesale trade, could not be mitigated from seasonal hiring in tourism," said Nikos Magginas, an economist with the National Bank of Greece.

Spain would be an excellent example too.

Spain faces unemployment pain after embracing austerity in European crisis

http://www.washingtonpost.com/world...opean-crisis/2012/02/09/gIQA8qsVJR_story.html

Spain’s drastic belt-tightening has moved government accounts in the right direction for the first time since the European financial crisis erupted last year. But in so doing, it has braked the economy into recession, accelerating a wave of firings and darkening the horizon for millions of workers.

In most of the 17 countries using the E.U. common currency, the euro, this has become the no-win choice leaders have had to make: balance budgets but forsake growth and jobs. Although they regularly promise to stimulate their economies — particularly France’s President Nicolas Sarkozy, who faces elections in the spring — the deep spending cuts required to carve down deficits and public debts have, in fact, strangled economic activity.

With the exception of Germany, zero growth or even recession has been predicted across most of the continent for the rest of the year and perhaps beyond. As a result, tax receipts needed to finance government action are declining and, in the saddest human toll, unemployment has risen to new heights.

Rajoy warned last week that unemployment in Spain — already Europe’s highest at nearly 23 percent — is likely to climb still higher before the year is out. The prospect for young people, those 24 and younger, among whom unemployment has reached 46 percent, is particularly bleak.

 

[Danke]

How about Paul Krugman as a source?
http://www.thestar.com/opinion/edit...an-led-austerity-may-smash-the-european-peace


As far as the economy is concerned, the government is the same as any other company. It can hire or fire workers. When budgets get cut, that means that people lose their jobs and unless there are already jobs in the economy for them to go to (and there aren't) then those people get added to the numbers of unemployed. Unemployed aren't getting paid (unless it is unemployment insurance which would be a government expense) and that means no income or social security taxes being paid by them (Government revenues). Their consumption goes down too since they don't have money to spend so sales taxes (usually state and local revenue sources) go down. And since these people aren't buying as much, the places they used to shop at see their business decline and they need less help as well so others lose jobs or hours of work as well.


http://www.reuters.com/article/2011/10/18/us-greece-unemployment-idUSTRE79H1TE20111018


Spain would be an excellent example too.


http://www.washingtonpost.com/world...opean-crisis/2012/02/09/gIQA8qsVJR_story.html

And Zippy's solution to this mess is?

 

[back2basics]

when will QE be announced?

 

[Zippyjuan]

And Zippy's solution to this mess is?

There is no simple solution. It was not as bad of a situation but in 1980 Reagan and the Fed also had to make a tough decision. The US had been seeing growing inflation over decades with little sign of letup. The solution was to raise interest rates but that would mean higher unemployment and not all presidents would have wanted the risk of short term harm to the economy in exchange for longer term benefits. He bit the bullet and interest rates were sharply hiked as high as 20% and within the next couple of years (1982) the unemployment rose to over ten percent- the highest this country had seen since the Great Depression- and the country went into a recession. In 1979 unemployment was only six percent. It did not hit ten percent in the current recession.

I guess for the United States I would favor a gradual closing of the budget gap- say $300 billion a year. But you have to shoot for a higher number to try to get to your target and you also have to include both budget cuts and taxes- even though that is unpopular. It cannot be done simply via cuts in spending. But getting anything close to that though Congress- especially in an election year (they are all basially election years now- the House and one third of the Senate get voted on every two years) will be incredibly difficult. I don't expect anything to happen. Congress hates any sort of difficult decisions and put them off as long as possible.

 

[Danke]

I guess for the United States I would favor a gradual closing of the budget gap- say $300 billion a year.

So 300 Billion a year in reductions is your number?

 

[Ben Bernanke]

Guys, the date on that article is Feb 2011

Infowars fail

 

[PaulStandsTall]

The gradual cutting spending and raising taxes is probably the most gentle (read: logical) thing to do approaching this weak economy. Unfortunately, we have a Congress that is beyond worthless. They will be gridlocked until Europe's collapse worsens IMO. Then they will see we must change our ways. ( At least I still have some hope that they will )

If they continue as they are doing, the unemployment will basically stay around the same amount, but in a slightly upward motion. Money printing and propping up zombie banks goes a long way when you think about it. It's delaying the inevitable, but it is at least holding somewhat steady.

Cutting $1T is scary. It's what we need ultimately yes, but with our unemployment and economy, it's a HUGE risk. Reagan got lucky as the debt was nothing compared to now. We are now in even more uncharted territory. Honestly, who knows what would happen if the cuts came through Congress? It's fun to think it would work but there is no example because the numbers have never been this large. The magic number for unemployment before the government is overthrown might be 30%, we don't know! And Congress sure doesn't want to find out either. Hah!

 

[Danke]

The gradual cutting spending and raising taxes is probably the most gentle (read: logical) thing to do approaching this weak economy.

You don't think raising taxes will not have a dire effect?

 

[PaulStandsTall]

You don't think raising taxes will not have a dire effect?

Not if it's done gradually. Yes I know that taxes don't spur growth, but growth is not the objective here. The object is paying our way out of the mess we are in. A slow transition back to fiscal sanity wouldn't be as high risk as cutting $1T (which is not likely anyways, even if RP is president) vis-a-vis unemployment.

But there are no easy answers here. Obviously it can't be done by cutting spending alone. We literally have to take in more revenue to be able to service the debts. Just like a business would need to do.

It's fun to think about, as if we are in charge. How we could fix things, and the different solutions that are feasible. But we are not in charge. Congress is, and Congress is worthless and will keep driving us deeper into debt until Europe's economic situation is disastrous IMO.

 

[Danke]

Not if it's done gradually. Yes I know that taxes don't spur growth, but growth is not the objective here. The object is paying our way out of the mess we are in. A slow transition back to fiscal sanity wouldn't be as high risk as cutting $1T (which is not likely anyways, even if RP is president) vis-a-vis unemployment.

But there are no easy answers here. Obviously it can't be done by cutting spending alone. We literally have to take in more revenue to be able to service the debts. Just like a business would need to do.

It's fun to think about, as if we are in charge. How we could fix things, and the different solutions that are feasible. But we are not in charge. Congress is, and Congress is worthless and will keep driving us deeper into debt until Europe's economic situation is disastrous IMO.

I say just repudiate the debt. I, nor you, are responsible for it.

Some shore term pain, no doubt. But the creditors can't collect anyway with our military.

Bring it. I'm for a reset.

 

[PaulStandsTall]

Well for every action...

If we repudiate the national debt, there are still unfunded liabilities (public debt). How will grandma get her Medicare/Social Security? Once the US refuses to repay it's debtors, and the Fed won't print the dollars, then we have: 1)No one to borrow from 2)No way to steal from our unborn grandchildren via Bernake. Obviously it would result in a huge upheaval of desperate hungry souls, and tremendous death. The idea is to avoid all of that bad stuff, and somehow keep along how we are and slowly get pay our way out if we can. All eyes on Europe. Let's hope Congress can learn something from all this.