On Thursday, the Federal Reserve made a mockery of President Obama’s recent campaign to convince the American people of “how far we’ve come from where we were five years ago.”
In “unexpectedly” announcing that it would continue propping up the economy with $85 billion of monthly “quantitative easing,” i.e., electronically “printing” money out of thin air to buy Treasury and mortgage-backed securities, Fed Chairman Ben Bernanke essentially said, “This economy still stinks.”
The mystery is why the Fed’s decision to leave “QE” where it is was at all unexpected, for a number of obvious reasons, plus another which should be.
In July, in a rare moment of unfettered candor deliberately ignored by all but a very few in the establishment press, when asked at his congressional testimony what would happen if the Fed tightened its monetary policy — which in the current context really means, “What would happen if you reduced QE by as little as $10 billion per month?” — Bernanke responded bluntly: “The economy would tank.”
That’s obviously still the case.
Nothing we’ve seen in the past two months would lead any reasonable observer to believe that the economy is meaningfully improving, or that it wouldn’t slip into another recession without its full monthly shot of monetary crack cocaine.
Employment growth this year has been and continues to be dominated by part-timers and temps. Labor force participation is at a 35-year low. In June, wildly disproportionate food stamp enrollment was over 47 million for the eleventh month in a row, seemingly and intractably stuck at a level 36 percent above where it was at the recession’s official end in June 2009.
Seasonally adjusted new home sales in July were over 20 percent below the figure originally reported in June, which itself was revised down by 8 percent. This is the sector whose alleged strong but in reality barely existing turnaround was going to bring back the economy. Despite all the hype, the fact remains that the seasonally adjusted number of single-family homes under construction in August was barely higher than it was at the recession’s end.
Beyond that, 2012 Census Bureau data released on September 17 revealed that real median household income fell for the fifth straight year to a mind-boggling 8.3 percent below where it was in 2007. African-Americans (down 11.3 percent since 2007) and Hispanics (down 8.9 percent) have taken even harder hits. The overall poverty rate, as imperfect a measurement as it is, remained at 15.0 percent, up 2-1/2 points, or 20 percent, from 2007.
Barack Obama, allegedly a fan of redistributing wealth from the rich to the poor and a champion of the middle class, has presided over an economy where during the past two years only the top 5 percent of households have seen median income gains.
In a huge irony, given Obama’s alleged “progressive” nature, stock market investors are about the only ones who are pleased with Bernanke’s move. Interest rates will remain artificially low for a while, but I wouldn’t get too comfortable. One astute contrarian claimed on Wednesday that “the Feds have already lost control of the bond market,” and in essence that it’s only a matter of time before “it lose(s) control of the stock market.”