The first time Federal Reserve Chairman Ben Bernanke acknowledged that we might be in a recessionwhich was April 2 — he suggested we’d crawl out of it in just a few short months.
Economic-stimulus checks, lower interest rates and unprecedented bailouts of Wall Street investment banks — all of this will save us, he promised.
“Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies … should support a return to growth in the second half of this year and next year,” Bernanke told the Joint Economic Committee of Congress on April 2.
So the man who would not use the R-word until just this month has now predicted when this horrible malaise will come to an end?
Oil hit a record of $117.76 a barrel Monday. Gasoline is averaging $3.50 a gallon nationwide. Analysts are predicting $4 gas this summer . . . and who knows where it ends?
Eventually, the price of oil affects the price of everything. That’s why airlines and retailers are filing bankruptcy en masse.
It’s why, outside the castle walls of Western civilization, people are rioting for rice. And it’s also why a Costco warehouse in Mountain View, Calif., is reportedly rationing rice to throngs of Asian-immigrant customers who’ve been scooping up as many 20-pound bags as they can.
I was not alive during World War II, so “rationing” is a scary word to me. I had always hoped that if things got bad, I could eat beans and rice like I did in college. Suddenly, I am rethinking my worst-case scenario.
Meanwhile, at the opposite end of the economic spectrum, banks and investment banks keep reporting mind-blowing losses that mount with every foreclosure.
On Monday, Bank of America, the second-largest U.S. bank behind Citigroup, reported another $1.9 billion in write-downs and $4.8 billion in credit losses.
An analysis by Bloomberg News, published Monday, tallied $247.6 billion in write-downs and $42.3 billion in credit losses at the world’s 70 largest banks and securities firms since the beginning of 2007. Nobody knows when these losses will stop. The economy is gyrating through a sharp and unpredictable downward spiral.
The more banks lose money, the more credit tightens, the more the Fed lowers interest rates and pumps liquidity into the market, the more the dollar weakens, the more oil (which is pegged to the dollar) rises, the more consumers get pinched, the more their homes fall into foreclosure. The more banks lose money . . .
Our Federal Reserve and our Treasury Department do not have the brains between them to put an end to this monster they helped create. The notion that a $600 economic-stimulus check can significantly offset $4 gasoline for the average tax-filing family smacks of magical thinking at best.
Perhaps the free-market solution is so brutal and unforgiving that the Fed, the Treasury and everyone in Washington, D.C., have no choice but to snort pixie dust.
These are not the ingredients of a soft, two-quarter recession. These are systemic problems that could take years to resolve. Meanwhile, it seems our most honest hope for the U.S. economy is that it continues to hobble along.
Al Lewis: 303-954-1967 or alewis@denverpost.com
