Federal Reserve Chairman Ben Bernanke gave the commencement address today to the Boston College School of Law’s graduating class. His speech centered on the inherent unpredictability in people’s lives and his perspective on how to deal with that. The business press was dismissed for coffee and Bernanke gave a personal speech.
There was no news to move the markets, but there was a personal sentiment on Bernanke’s own enduring confidence in the U.S. economy and his foreshadowing on some of the great challenges to be faced by the class of 2009:
You are lucky also to be living and studying in the United States. There is a lot of pessimistic talk now about the future of America’s economy and its role in the world. Such talk accompanies every period of economic weakness. The United States endured a decade-long Great Depression and returned to prosperity and global leadership. When I graduated from college in 1975, and from graduate school in 1979, the economy was sputtering, gas prices and inflation were high, and pessimism–malaise, President Carter called it–was rampant. The U.S. economy subsequently entered more than two decades of growth and prosperity. The economy will recover–it has too many fundamental strengths to be kept down for too long–and the mood will brighten.
This is not to ignore real challenges. Our society is aging, implying higher health-care costs and fiscal burdens. We need to save more as a country, to reduce global imbalances in saving and investment, and to set the stage for continued growth. Our educational system is strong in some areas, including our university system, but does not serve everyone equally well, contributing to slower growth and greater income disparities. In the diverse capacities for which your training has prepared you, many of you will play a vital role in addressing these problems, both in the public and private spheres.
Statistics Source: Bureau of Labor Statistics, U.S. Department of Labor
As defined by the Dept. of Labor, a mass layoff is a situation in which 50 or more persons have filed initial claims for unemployment insurance benefits against an establishment during a consecutive 5-week period.
Headline is for the End Times Asshats.
More Americans than forecast filed claims for unemployment insurance last week, and the total number of workers receiving benefits rose to a record, signs the job market continues to weaken even as the economic slump eases.
Initial jobless claims fell by 12,000 to 631,000 in the week ended May 16, from a revised 643,000 the prior week that was higher than initially estimated, the Labor Department said today in Washington. The total number of people collecting benefits rose to 6.66 million, a record reading for a 16th straight week, and a sign companies are still not hiring.
(Source: U.S. Dept. of the Treasury)
Chairman Dodd, Ranking Member Shelby, members of the Senate Banking Committee, thank you for the opportunity to testify before you today.
On October 3, 2008, during a time of tremendous financial upheaval and economic uncertainty, Congress passed the Emergency Economic Stabilization Act (EESA) with the specific goal of stabilizing the nation’s financial system and preventing catastrophic collapse. Soon after taking office, this Administration rebuilt the EESA programs from the ground up with a new foundation. We also unveiled a financial stability plan to restore the flow of credit to consumers and businesses, tackle the foreclosure crisis in order to help millions of Americans stay in their homes, and comprehensively reform the nation’s financial regulatory system so that a crisis like this one never happens again.
Today, just four months into President Obama’s term of office, there are important indications that our financial system is starting to heal. For example, spreads for investment grade corporate bonds have fallen about 210 basis points and spreads on high yield corporate bonds are down about 770 basis points since the end of November. Spreads on AAA municipal bonds have come down 150 basis points since October. Risk premiums in short-term, inter-bank markets have fallen 280 basis points over roughly the same period and the cost of credit protection for the largest U.S. banks has fallen by about 180 basis points just since early April. Treasury is continuing to look into additional metrics that gauge the markets more broadly, as well as additional economic metrics, to determine the effectiveness of the current strategy and whether additional or different steps are needed.
Read the story on today’s Housing Starts release from Reuters.
PIT = Personal Income Tax
Read more about the graphic below and offshore tax havens at the New York Times.
Full Text: Fed Chairman Bernanke Testimony to Joint Economic Committee, May 5, 2009 – Economic Outlook
Bernanke Says Economy Begins Growing Near End of 2009, but growth “subpar” for some time
(Source: Board of Governors of the Federal Reserve)
Chairman Ben S. Bernanke
The economic outlook
Before the Joint Economic Committee, U.S. Congress, Washington, D.C.
May 5, 2009
Chair Maloney, Vice Chairman Schumer, Ranking Members Brownback and Brady, and other members of the Committee, I am pleased to be here today to offer my views on recent economic developments, the outlook for the economy, and current conditions in financial markets.
Recent Economic Developments
The U.S. economy has contracted sharply since last autumn, with real gross domestic product (GDP) having dropped at an annual rate of more than 6 percent in the fourth quarter of 2008 and the first quarter of this year. Among the enormous costs of the downturn is the loss of some 5 million payroll jobs over the past 15 months. The most recent information on the labor market–the number of new and continuing claims for unemployment insurance through late April–suggests that we are likely to see further sizable job losses and increased unemployment in coming months.
However, the recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing. Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter. In coming months, households’ spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment. Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market and the declines in equity and housing wealth that households have experienced over the past two years. In addition, credit conditions for consumers remain tight.
Paul Krugman takes a Friday off from the financial crisis to deal with the naysayers on cap and trade. The argument goes, say some, that if cap and trade on emissions is put into place the economy will come crashing down around us — things will just be too expensive.
Krugman very plainly outlines some reasearch and a plan that says otherwise:
… the opponents of action claim that limiting emissions would have devastating effects on the U.S. economy. So it’s important to understand that just as denials that climate change is happening are junk science, predictions of economic disaster if we try to do anything about climate change are junk economics.
Yes, limiting emissions would have its costs. As a card-carrying economist, I cringe when “green economy” enthusiasts insist that protecting the environment would be all gain, no pain.
But the best available estimates suggest that the costs of an emissions-limitation program would be modest, as long as it’s implemented gradually. And committing ourselves now might actually help the economy recover from its current slump.
From the St. Louis Fed:
(Source: Board of Governors of the Federal Reserve)
April 29, 2009 – 2 p.m.
Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
Chris Wallace, Moderator
Larry Summers, Council of Economic Advisors, Obama Administration
WALLACE: And hello again from Fox News in Washington. From the moment he took the oath of office, fixing the economy has been job one for President Obama. Now, as he nears the end of his first 100 days, that seems as big a challenge as ever.
Joining us to discuss where things stand is the president’s top economic adviser, Lawrence Summers.
Mr. Summers, federal regulators met with executives of the nation’s 19 largest banks on Friday to tell them how they did in those government stress tests. I know at this point you can’t reveal the individual results, but overall, what kind of shape is the system in?
SUMMERS: As Secretary Geithner said, the vast majority of the banks in the United States are well capitalized. There’s work that needs to be done. It can be done in many ways — by raising private capital, through exchanges, backstopped by government capital where necessary.
But I think we’re going to be in a good position to provide the support and set the framework in which the banking system can move along the process of recovery.
We’ve got a long way to go, but in just three months we’ve taken a whole set of important steps — mortgage relief for 9 million American homeowners that’s going to enable families who otherwise couldn’t have refinanced their mortgage to refinance their mortgage; substantial program of support for small businesses who have often been the group that bore the brunt of this credit crunch; measures to get the markets going so that you’ve got more of a flow of mortgage credit.
We’ve seen near — extremely high levels of mortgage refinancing, a substantial reduction in credit spreads for consumers. We’ve got a long way to go. There are still serious problems in this economy.
But both with respect to the financial side and, what’s obviously crucially related, with respect to the income side, the measures we’ve taken I think are very strong and offer the prospect of containing a very serious situation.
I’ve done a lot of bashing of the Merril Lynchs, AIGs and Banks of America of the world and their role in the U.S. financial crisis. While I’m at it, why don’t I just add the ratings agencies and every politician in Washington to that free market for the investment class dogpile.
What doesn’t get enough attention is the fact you, me, our family, friends and neighbors have been fueling the false economy that’s come down around us. The fuel has been easy credit and the accelerant has been Americans’ insatiable appetite for more, bigger and better things. The chart below is from the New York Federal Reserve Bank and shows how Americans’ financial obligations have grown over time. I would imagine the upward trend in the top chart beginning around 2000 is the housing bubble effect – how much equity did you take out of your house when it was worth 20 to 40 percent more than it is today?
(Source: White House)
It has now been twelve weeks since my administration began. And I think even our critics would agree that at the very least, we’ve been busy. In just under three months, we have responded to an extraordinary set of economic challenges with extraordinary action – action that has been unprecedented in both its scale and its speed.
I know that some have accused us of taking on too much at once. Others believe we haven’t done enough. And many Americans are simply wondering how all of our different programs and policies fit together in a single, overarching strategy that will move this economy from recession to recovery and ultimately to prosperity.
From USA Today comes an interactive map of the U.S., Auto Industry Touches Every State. Click the image below to go check it out.
You’ve got to at least listen to what Dr. Doom has to say …
First on the economy in general and recovery, markets, etc:
Nouriel Roubini, a professor at New York University’s Stern School of Business and chairman of economic research firm RGE Monitor, said on Tuesday that he expected more dour macroeconomic data and problems in the banking and housing sectors, as well as pressures on consumers.
Big stimulus packages will eventually slow the rate at which economies contract, but that will take time, he added.
“There will be a light at the end of the tunnel somewhere down the line, later rather than sooner,” he said at a Toronto news conference, which took place ahead of a Sprott Asset Management event entitled “A Night with the Bears.”
Then, on CNBC’s Jim Cramer:
“Cramer is a buffoon,” said Roubini, a New York University economics professor often called Dr. Doom. “He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong. And after all this mess and Jon Stewart he should just shut up because he has no shame.”
… Dann Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier.
He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year. …
… But Adams said the continued increase in mortgage delinquencies revealed in his data foreshadows more foreclosures, short sales and home price declines as homeowners default and banks then repossess the homes to sell them at deep discounts.