The somewhat gloomy testimony Ben Bernanke provided to the Senate Banking Committee caused the stock market to drop, and generally didn't inspire confidence. However,
A couple of things our Chairman said during his testimony caught my attention.
An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects. After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers' employment and earnings prospects.
My colleagues on the Federal Open Market Committee (FOMC) and I expect continued moderate growth, a gradual decline in the unemployment rate, and subdued inflation over the next several years. In conjunction with the June FOMC meeting, Board members and Reserve Bank presidents prepared forecasts of economic growth, unemployment, and inflation for the years 2010 through 2012 and over the longer run. The forecasts are qualitatively similar to those we released in February and May, although progress in reducing unemployment is now expected to be somewhat slower than we previously projected, and near-term inflation now looks likely to be a little lower. Most FOMC participants expect real GDP growth of 3 to 3-1/2 percent in 2010, and roughly 3-1/2 to 4-1/2 percent in 2011 and 2012. The unemployment rate is expected to decline to between 7 and 7-1/2 percent by the end of 2012. Most participants viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside. Most participants projected that inflation will average only about 1 percent in 2010 and that it will remain low during 2011 and 2012, with the risks to the inflation outlook roughly balanced.
And finally in responding to a question from Senator Dodd, regarding small-scale federal stimulus he stated:
"I would be reluctant to withdraw that support too precipitously in the near term," . . . "At the same time, to maintain confidence and keep interest rates low, it’s important that we have a strong and credible plan to reduce deficits over the coming years."
I'm not an economist, but I translate these comments as follows: (1) the job market is completely crappy right now; (2) the job market may become slightly less crappy in the future, but for the next 2 1/2 years it will still be pretty crappy; (3) yes, the deficit needs to be addressed over the long term, but in the short term you're stupid if you withdraw small scale stimulus (like unemployment extensions that provide spending money to consumers who immediately spend it on things produced by our consumer-dependent economy).
The next time an unemployment extention comes up for a vote, I'm expecting to hear the same senators repeat the same BS about how extending unemployment benefits gives those lazy unemployed people an excuse to delay going back to work even longer. Maybe they should listen to Chairman Bernanke: There are nowhere near enough jobs, and pumping more money through the economy with unemployment payments to people who can't find jobs, and need to spend the money immediately, will help. These same senators took Chairman Bernanke at his word when he said it was necessary to spent trillions to shore up the banks and brokerage houses, why not listen to him now?