Recovery – Slow, Slog, Staggering
Until capitalists are engaged in the process of engineering high returns from American investments, the economy will drag on. Until government reins in spending to a radically significant level to reduce the debt, there will be insufficient capital to fuel investments. Until government and industry collaborate to renew America in pursuit of a vision for refueling the nation with new energy sources, new products, and new communities that leverage them, we’re stuck in our legacy.
The challenge is to leap forward with effective leadership.
Capitalists generally don’t care about political ideology except when it comes to providing them with incentives and the environment they need to achieve high return on investments.
Both CEOs of government and commercial enterprise are about the business of optimizing return on national resources. That requires high precision and exceedingly close working relationships that we have not seen since WWII, even though we have been at war. One reason is that government contractors have no commercial customers. They are on welfare like everyone else working for government.
Ben Bernanke is at the pointy end and looks ahead a little, but is not the source of solutions. That must come from the private sector.
“Federal Reserve, acknowledging slowdown, reins in forecasts for economic growth
By Neil Irwin, Published: June 22
The economic recovery is slowing and the outlook for next year has gotten worse, Federal Reserve Chairman Ben S. Bernanke said Wednesday, backing away from the view that the slowdown of the past few months was merely temporary.
The central bank released new economic projections that showed weaker growth in both 2011 and 2012 than had been forecast just two months ago. Despite the slowdown, the Fed said it will end a program of buying vast sums of Treasury bonds at the end of June as scheduled and gave no sign it is contemplating new action.
But Bernanke, whom markets turn to as a purveyor of economic wisdom, said the Fed had no solid answers as to why, two years into an economic recovery, growth keeps disappointing.
“We don’t have a precise read on why this slower pace of growth is persisting,” Bernanke said in a news conference Wednesday afternoon. He suggested that problems in the financial sector and the housing market, and with consumers trying to pay down their debt, had been underestimated. “Some of these head winds may be stronger or more persistent than we thought.”
Even as the central bank’s leaders lowered their expectations for the days immediately ahead, a different set of government economists offered a dire long-term forecast for the federal government’s fiscal health. The nonpartisan Congressional Budget Office estimated that the rising cost of Medicare, Medicaid and Social Security would, if left unchecked, lead to a national debt twice as big as the economy.
The CBO report highlighted the quandary confronting the United States: a weak economy in the near term and huge deficits in the longer run. Bernanke on Wednesday cautioned against conflating the two problems.
“Our budgetary problems are very long-run in nature,” said the Fed chairman, noting that the CBO projections go to 2025 and beyond. “That doesn’t mean we should wait to act. The sooner we can act, the better. But the most efficient and effective way to address our fiscal problems . . . is to take a long-run perspective, not to focus the cuts heavily on the near term.”
The Fed left its policy of ultra-low interest rates unchanged and will continue to hold massive amounts of securities in a bid to foster growth. But it confirmed Wednesday that it will let its policy of buying $600 billion in Treasury bonds expire at the end of this month, as has long been the plan. That brings to an end the controversial round of quantitative easing — or QE2, as it became known — enacted in November to boost the economy.
Extending the old metaphor that the role of a central bank is to take away the punch bowl just when the party gets good, economists at Bank of America Merrill Lynch wrote that “with so many parts of the economy like somber wallflowers, the Bernanke-led Fed is keeping the punchbowl filled but not spiking the drinks any further at this time.”
That’s because not all economic arrows are pointing in the wrong direction.
“The situation is different today than last August,” when the Fed began considering what became the QE2 policy, Bernanke said, in that inflation is higher and job growth is stronger, though employment weakened a bit in May.”
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