Don't Lose Your Nerve Now Bernanke!

Fed Chairment Bernanke spoke yesterday at that Economic Club of Minneapolis.   In his speech he recapped the financial crisis that has gripped the economy going back to 2008.  While he did reinforce his belief that the recovery and end to the recession began back in June of 2009, he also disappointingly stated that "it is clear that the recovery from the crisis has been much less robust than we had hoped."  Most notably is his remark that "The pattern of sluggish economic growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an annual rate of less than 1 percent, on average, in the first and second quarters."

Bernanke then proceeds in his speech to list various reasons for why the economy is so sluggish and explains the major headwinds that are apt to lead to even further slowness including fiscal drag and general uncertainty over Federal policy and taxes.  Then he goes on to dismiss inflation as any threat in the near term, and by the time he is 4/5ths through his speech he has completely cleared the way for the Federal Reserve to take greater actions in order to focus on the other of its two mandates, "full employment."  This is clear in the closing sentence of his speech, "The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability."

You know what I got from his speech?  A whole lot of nothing!  (Or, maybe something much worse!)  I didn't need a history or an economics lesson.  Or, are we supposed to feel more confident because Bernanke can outline the series of events and issues so succinctly?  If so, it didn't work for me at least and I don't think the market felt any sense of relief either.  Frankly, knowing how we got here is a lot different than knowing where we are heading or what to do next!!  Besides, the situation today is long past needing "Fed Speak" as way to address the many severe depressionary challenges the world faces!

Bernanke ... take a page from Christine Lagarde, the new Managing Director of the International Monetary Fund, who warned today that the global economy is entering a "dangerous new phase" and that "as time goes by, there's a danger of (the economy) getting worse rather than better." Lagarde is pretty straight about the fact that "The world is collectively suffering from a crisis of confidence, in the face of a deteriorating economic outlook and rising concerns about the health of sovereigns and banks."  It sure seems that Lagarde sees the need for "strong action and even refers to more action to support the recovery, including through unconventional measures."

I am beginning to sense fear in Bernanke of late.  There appears to be a reluctance to take real action and to lean impotently on the power of speech.  What's more, it is troubling to think that Bernanke's expressed surprise over the consumers' behavior are indicative of a Fed Chairmen who is confused and has lost self-confidence.  For heavens sake Ben, do NOT lose your nerve now!!!  This is NO TIME for you to be timid, let alone fearful of how your outspoken critics will respond to your decisions.  With Obama and all of congress locked in all out political battle, and practically unable to tie their shoes, we need the one person on the planet who can take meaningful, albeit controversial, actions to move the economy forward to do so. Be bold Ben Bernanke.  To quote a famous phrase used by the last man to face the challenge of a depression and a world war, "We have nothing to fear but fear itself!"

There is way too much inaction or negative action going on around the world when it comes to getting the USA and European economies on an upward trajectory!  We need bold moves by the monetary powers around the world while we still have an economy that can be stimulated!  And we need those actions put forth in a strong, confident, and collective voice!  NOW!!!

Tough To Say!

On so many levels it's tough to say where things are heading!  There is so much uncertainty:  Recession, 50/50; Super Committee's plan for deficit reduction and how will it be received, who knows; The presidential election, anyone's guess; What type of governments emerge in Egypt, Libya and will they be stabilizing?  What's next for Syria?  Is Iran after that?  Where does it all leave Israel and will they be forced to mitigate the nuclear threat from Iran?  How will we cope with climate change?  There's a thousand really tough questions and very few solid answers.  I can't remember a time in my life when there seemed to be so much uncertainty over so many substantial issues worldwide.  If you're a pessimist it is an awful time!  Even if you're an optimist is still an unnerving. A pragmatist could throw up their hands trying to come up with a calculated answer. It's really to tough to say where things are heading.

People hate uncertainty.  Stock markets hate uncertainty.  I think the only people who love uncertainty are anarchistic and doomsayers.  This is a great time for someone who would like to lead a rebellion.  And, as the political season heats up around the USA I'm betting some of the political stumping sounds as close to a call for overthrowing the government as you can get without seriously meaning it.  No doubt that some of them will mean it. (Get your pitchfork ready.)

It's getting ugly and austerity hasn't even really kicked in yet.  If Euro countries, the UK, and the USA take the austerity steps they seem to be that are needed to rein in deficit spending from a gallop to a cantor, let alone a fast trot, there will be much more pain and protest to deal with.  Scenes like the ones we saw in Greece earlier this year will be much more common across Europe.  In the USA, expect to see Tea Party rallies so large that they fill stadiums. No security could safely escort Harry Reid through those tailgating parties.     

We are about half way through the Hurricane season, and already FEMA is broke. Let Katia or whatever storms or other kinds of natural disasters cause another few billion dollars of damage and leave a few more millions without power or homeless and then even the weather is a big factor in turning an already tumultuous time for society into a downright out of control situation.

Is it a coincidence that next year is 2012?  Movies about Armageddon went into production years ago.  Their producers may be starting to get worried about the box office receipts if we are actually having it.  Wouldn't that be the ultimate irony!

OK, let me try to rise above all this. The world is not coming to an end!  But if it is, consider yourself lucky to have lived to see it.  There's no denying the parallels with the Mayan calendar, and that recent geopolitical events appear to play into the "end-of-days" prophets.  If it's enough to scare you then go ahead and get your house in order - worship and repent, tell people you love them, cherish every day, and take the vacation you've always dreamed of ... it's all good even if the world goes on for another ten thousand years.

Generation after generation have had to face tough times and frightening thoughts about the future.  I don't have to list history to prove that.  The key thing to keep in mind is that we always got through it!  Mankind finds a way.  Humans are amazing and resourceful creatures.  Overall, we tend to get our way.  And while Americans may have grown soft we are bred from the stock of the people who founded this nation, got through the civil war, the Great Depression, and won two world wars.  We got "enough tuff" in us to handle just about anything Obama or Bernanke can throw at us!  

What we need is a little perspective in order to see where the situation with the economy is heading.  I will take a stab at it.

Various governments around the world are broke and the only way they can get through this mess we are in is through more aggressive monetary policy.  Forget about fiscal stimulus or new taxes raising enough money to deal with the debt. Call the solution whatever you like, but I like to call it what it is, printing money.  That sounds bad but first let's get this fact straight. ALL the money in circulation is fake!!  None of it is backed by material assets. We've been off the Gold Standard for decades.  Money js just printed pieces of paper or digital numbers with lots of zeros. It only has value because we believe it has value!  And, money only has value for two reasons:  1) People accept it in exchange for what really does have value (goods and services). 2) There is NOT so much money floating around that there is more it chasing the supply of goods and services than there is a supply of those goods and services.  With those two facts firmly in mind, ask yourself the following three questions:  1) Do you really expect people to refuse any legitimate currency in circulation?  2) Are you worried about having too much money?  3)  Do you expect the Exon/Mobile to say they are out of gas?  If you answered "NO freak'n way" to those three questions then I believe we all need to stop worrying about QE anything causing too much inflation!  There is way too much fear of inflation.  I like the way Bernanke put it ... I believe he called recent inflation concerns "transitory!"   What a perfect way to put it!!

Even if oil did go to $120 a barrel again it's only going to accelerate the rate at which America becomes non-dependent on foreign oil.  Watch how many more businesses and households take real steps to reduce their demand for oil and gasoline as oil prices go back up again.  People will be going solar, pulling up to the pump in hybrids that get 2x mileage, recycling every ounce of metal or plastic, and replacing their windows, doors, furnace, and every inefficient appliance they have before they pay $140 a barrel again.  Oil and gas supply towns like Williston North Dakota will be booming across the USA and oil will be coming out of every pour before we become dependent on a Libya, let alone Iran, for their oil.  I think just about every American wants to tell OPEC to pound sea salt and it's about time we did!!!  I'm not worried about higher oil prices.  In fact I say, bring it on!!

I'm not worried about food inflation either.  America has the greatest agricultural supply industry in the world.  And in the process we've learned to manufacturer the most amazing farming machinery and equipment the world has every seen. We have corn combine tractors that need their own zip code. That bodes well for many American firms who are positioned fantastically to profit from the demand coming from developing and emerging continents like Africa and Asia, as well as South America.  Food inflation will be tackled with the tools and other farming technology. that America leads the world in.  (And by the way, our cheap dollar isn't hurting the firms that make and supply this equipment.)  A tangential benefit that I see coming from food inflation is how it will cause Americans to rediscover something wonderful that we gave up to the giant industrial farms - family farms.  One way American's can address food inflation, let alone the effects of all the additives in processed foods, is to get back to "home grown" or at least locally grown produce, meats, and dairy.  This isn't just good for our health, it's good for jobs in our communities as we source more of our table from local farmers and markets.

No matter what we do to turn our economy around it isn't going to happen until we fix the housing industry!  Given the fact that the housing industry is at depression levels it's a wonder that unemployment isn't as well above where it is today.  Personally, I see that as evidence of how strong and diverse our economy really is. But the housing industry is still vital to the health of our economy and just like the automotive industry, the housing industry needs to make a comeback.  I believe it will and with it will come the jobs. And, with both we will be pulling ourselves out of the economic malaise and seeing brighter days

I know I can't get off that easily with just saying "I believe housing will make a comeback" without giving some reasonable logic for why it will.  So here is the reason and it's much simpler than you than you think. The solution for the housing industry plays a lot like a game of musical chairs. Only instead of players getting out of their chairs there are lots of distressed homeowners who need to get up out of the homes and slide over to another home a lot like it.  Now I will explain.

The game begins with Bernanke's "operation twist" in order to drive down long term interest rates.  As if they aren't low enough already, the 30 year mortgage is apt to go a level we haven't seen in our lifetime and our children will never see in their lifetime.  Couple historically low interests rates with a remarkably attractive pricing index and fantastic supply and people have an opportunity to buy a home is that is possibly the deal of the century!!

The great housing values and affordability is all well and good but if people can't qualify for a mortgage it's not going to do a lot of good for home buying or the housing industry.  I believe that is about to change.  It makes no sense for someone to be disqualified for a home that they truly can afford because they failed to make the payments on an overly priced house with the mortgage that they never should have been given.  The situation in the housing industry is just insane and government regulators and the private sector have got to come to terms with the fact that someone who was just foreclosed on or who simply handed back the title and keys and walked away can be highly qualified to buy another home right away regardless if they have a 200 credit score.  When we stop the insanity and let those people get a mortgage with some reasonable down payment, or even to refinance their current mortgage with no equity, that will be the day when we start to turn back the housing industry crisis, for that is the day when the musical starts and a lot of desperate homeowners will get out of their "chairs" and move to a home they can afford and start to make payments they can easily live with.  And when the banks and other holders of mortgages start eliminating their non-performing loans and liquidating their properties we will all start to see brighter days!!

What about the government and size of entitlements you may ask.  OK, I saved the best (or the worst) for last.  If you ask me that could well be the biggest prize for having to live through this painful recession.  For the first time in over a generation we may actually begin to shrink government!  That includes Federal, State, and every level and agency.  Hallelujah!!  Less government means less spending and less spending means less government borrowing.  That means businesses are in less competition with the government for capital borrowing or workers.  No apologies to many greedy Union leaders who had it coming and have been destroying rather than helping our country!!  (When the Unions recognize how they can be part of the solution I will applaud you, but thus far it has been far the opposite.) The problem with our deficit and debt is simply that there are just too many living off of too few.  Let's stop calling this overhead "entitlements" because it starts off with the premiss that people are entitled!!  Too many people have been given pensions and benefits that they should not be entitled to! That is the tough truth!  I don't say that rolling back entitlements won't be painful for some, but it can be done and it has to be done!  If I agree with the Tea Party on anything that is it.  And, I'm including the military in this. Enough already!  No, too much already!  While there are some tax loopholes that have to be closed, we can not tax our way out of this deficit.  In fact, if we want American company profits made overseas to be repatriated and invested in the USA we actually have to cut corporate taxes! Every dollar that goes into government has to be looked at as a dollar that could have been better spent by you!  Every dollar a business has to hand over to government is a dollar that the business could have been spent on labor or invested in research, development, plant & equipment or even distributed as dividends to help fund someone's retirement income.

As government shrinks the economy can grow, but only if there is sufficient monetary stimulus to ride us through a truly soft patch.  And, only if regulators encourage more energy self-sufficiency by letting more towns like Williston to raise domestic supply.  And, if we get reasonable about who qualifies for a mortgage today regardless of what happened with their last home mortgage.  Entitlements are the past, America needs to invest in the future.  The biggest crisis we have in America is finding the leadership that sees our problems for what they are and has the courage and ability to articulate the problems and solutions and inspire us to tackle them. That is what I really mean by the title for this post "tough to say!"