Bernanke Messaging Fail: Americans Still Haven't Heard About Recovery


This man felt much better after hearing about the success of QE2.

By now it's well known that Federal Reserve Bank Chairman Ben Bernanke's ghoulish attempts to be charming just give nightmares to little children. But his bumbling press conference yesterday may also be unsettling adults. 

According to Gallup, as of last week a majority of Americans believed the economy is in either a recession (26 percent) or a depression (29 percent). Another 16 percent are settling for either a decession or a repression – or whatever it is when the economy is "slowing down." Where could they be getting these ideas? 

Well, the rate of new unemployment claims has stopped going down. New jobless claims came in at 429,000 for the week ending April 23 – the highest they have been since January (the last really good month this country's had, damn it!). 

Of course, in these stagflationtastic times, you're not really cool until you exhaust your unemployment benefits and go all the way to "marginal attachment to the workforce." How many people have done that in the past year? Get off the couch and take a bow, one million Americans

At least we know that this unemployment is following the Phillips Curve (the theory that inflation correlates negatively with unemployment, which was apparently disproven in the 1970s but still clearly guides Fed and Treasury policy). Inflation can't be happening because Bernanke says it's transitory and Paul Krugman, The Doctor, ridicules the idea. But wait! Looks like rents have joined gas and food among the items that are not inflating, just going up in price. (Incidentally, for an interesting but technical reconsideration of the Phillips curve, check out this study [pdf] by Robert F. Mulligan in the Cato Journal.) 

The only thing that doesn't cost more is the one asset where most Americans have most of their money tied up. The Case-Shiller real estate index has taken another nose dive, and if you think house prices don't still have a few hundred thousand feet left to fall, consider this: Real estate began seriously inflating early in the last decade, if not earlier, and according to Case-Shiller, prices are only about where they were in the early 2009 trough. 

Which means all this money printing is inflating everything except house prices – the one asset the government is trying to prop up. And the money printing is making everybody poorer. The value of the dollar has been dropping like a stone (if a stone were made of paper with nothing to back it up, that is), and a Deutsche Bank study says the greenback, adjusted for inflation, is the weakest it's been since the end of the gold standard. Things have gotten so bad even Russian Prime Minister Vladimir Putin is showing us mock sympathy:

"We see that everything is not so good for our friends in the States," Putin told lawmakers Wednesday.

"Look at their trade balance, their debt, and budget. They turn on the printing press and flood the entire dollar zone — in other words, the whole world — with government bonds. There is no way we will act this way anytime soon. We don't have the luxury of such hooliganism," he said.

Even as Putin blamed the U.S. for printing money — something for which Russia was criticized during periods of hyperinflation in the 1990s — other Russian officials said there is no alternative to the U.S. dollar and declined to discuss cutting the country's dollar holdings.

You know who else are not cutting their dollar holdings? Americans. Despite all this inflation, people are more and more reluctant to spend. Wal-Mart, which has seen sales decline for seven straight quarters, is suffering from broke-customer syndrome. "We're seeing core consumers under a lot of pressure," CEO Mike Duke said at a conference yesterday. "There's no doubt that rising fuel prices are having an impact… Purchases are really dropping off by the end of the month even more than last year." 

I hate to be so churlish as to bring this up on the very day that crooked judges have once again awarded Lord Keynes the title, but can anybody provide any evidence that any of this stimulus – be it fiscal policy, monetary policy or "aggregate demand stimulus" – has made any positive difference in the U.S. economy? I know it's only been four years since the bailouts started, but you know, maybe we could get a measurement somewhat more scientific than repeating a "gazillion times" that spending is keeping the depression from happening? Or more persuasive than Bernanke's assertion, "I do believe that the second round of securities purchases was effective"? (The Ben Bernank's very short list of evidence – a stock market rally, easy credit, and "reduced volatility" – was comically unconvincing.) 

These blanket claims that monetary stimulus has been helpful are, in my view, even more repellent than Krugman's claim that we need more Keynesian patent medicine. At least the hardcore interventionists believe in something, however wrong it is. I'd be happy if they would ever specify what they think enough spending would be, and have made suggestions to that effect. But nobody can honestly look at Bernanke's stewardship of the Fed and say he's done a competent job. There's just something surreal about telling Americans in 2011 that things are getting better.