Bernanke Offers Jobless Recovery as Humphrey-Hawkins Hopes Fade

[Joanne98]

Feb. 23 (Bloomberg) -- Hubert Humphrey and Augustus Hawkins wouldn’t like what Ben S. Bernanke has to say to Congress tomorrow.

The Federal Reserve chairman, delivering semiannual testimony required in legislation written by the late lawmakers, will describe a U.S. economy returning to growth next year without generating many new jobs. Even with credit markets thawing, Fed officials see unemployment persisting at 8 percent or higher through the final three months of 2010.

“We could have an awkward situation where the recession ends and the job-loss situation continues for some time,” says Christopher Rupkey, chief financial economist at Bank of Tokyo Mitsubishi UFJ Ltd. in New York. That “probably hasn’t been a factor that has pressured the Fed since the 1990-1991 recession.”

A recovery with slow job growth would keep pressure on the Fed to hold interest rates around zero and to continue or expand billions of dollars in lending programs and asset purchases. It would also mark a failure to fulfill the mandate of the Humphrey-Hawkins Full Employment and Balanced Growth Act, signed into law by President Jimmy Carter on Oct. 27, 1978, that the central bank achieve both maximum employment and stable prices.

“We’ve got a lot to talk about,” says Representative Maxine Waters, a California Democrat who succeeded Hawkins in Congress in 1991. She serves on the House Financial Services Committee, which will hear from Bernanke on Feb. 25, the day after he meets with the Senate Banking Committee.

Presidential Nominee

Hawkins died in 2007; the bill’s other author, Minnesota Senator Humphrey -- a former Democratic vice president and 1968 presidential nominee -- died in 1978 before the measure was approved.

Bernanke, the 55-year-old Fed chairman, says returning to lower levels of unemployment depends on financial stability and improved flows of credit. The Fed has used its balance sheet to try to compensate for the pullback in bank lending, more than doubling Fed credit to the economy to $1.9 trillion.

Preventing higher unemployment “depends critically on policy,” Bernanke told the National Press Club in Washington on Feb. 18. “If we can take strong and aggressive action, including the Fed’s actions to try to improve credit markets, I think we can break the back of this thing and we will begin to see improvements in 2009.”

While some Fed officials expect economic growth to resume in the latter half of this year, unemployment may not get below 7 percent until 2011 or even later, according to the latest forecast.

Jobless Recovery

That means the U.S. may be in for its third jobless recovery since 1991. The recession bottomed in March of that year, and unemployment kept increasing for 15 months, reaching 7.8 percent in June 1992. Similarly, the last recession ended in November 2001, and unemployment didn’t peak until reaching 6.3 percent in June 2003.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aAZzcqBRclVE&refer=home

This is not acceptable!

[ixion]

1. "jobless recovery" is NOT a recovery at all...

that's BS neocon spin logic, and it shouldn't even be accepted as plausible.

There is NO SUCH THING as a 'jobless' recovery. All that means is that they've cooked the books.

[burythehatchet]

2. This is pure fantasy. There will be no recovery in 2010

We keep listening to same people who have been wrong about EVERYTHING

[fasttense]

3. Like Ben Bernanke has just done so much to prevent this 2nd Republicon Great Depression.

He helped get us into this mess and he will try as hard as he can to keep us here. A jobless recovery is a painless death. The uber wealthy will feel no pain but the economy will still be dead.

Without jobs, there will be NO Market for the uber wealthy to sell their slave labor products to. The imaginary middle class in China and India will never be big enough to buy the crap corporations want to sell because the corporations just don't pay them enough. To continue to rake in the huge profits the corporations need a whole lot of people who are not on the brink of ruin to buy their crap. That's not going to happen when the world is in the middle of a depression.

[leveymg]

5. Bernanke: How to avoid a Great Depression - better bankruptcies and more efficient foreclosures

In Bernanke's book, the Great Depression (that he says started in 1933) wasn't really the result of crashing markets, shuttered factories, and millions of homeless. No. The problem was that markets for liquidates assets of bankruptcies and home foreclosures weren't sufficiently efficient for his taste.

http://babyboomeradvisorclub.com/Bernanke made his name as an economist with an article he published in June 1983. In that American Economic Review article, the future Fed Chairman wrote that the reason the 1929-33 recession turned into systemic bank failure and a Great Depression was a protracted reduction in lending. The freeze-up in the credit markets that resulted in the March 10, 1933 "Bank Holiday" was unnecessarily protracted and severe because markets for the disposal of bankruptcies and foreclosures were insufficiently developed, and that lenders, not having sufficient information about the true extent of the problem, essentially stopped lending. This snowballed into a deep, downward spiral of industrial failure, protracted unemployment, and lowered output of goods and services.

The solution Bernanke favors is more up-to-date and accurate reporting of distress sales -- i.e., a managed recession -- rather than governmental stimulus or any fundamental reforms in lending practices or massive intervention to assist homeowners.

Bottom line, the Fed Chairman thought that jobless recovery and the mortgage crisis were quite managable (not a real problem) and that the answer was an efficient market for foreclosures.

You're a great humanitarian, Ben. Tell that to six million Americans who will be out in street by the end of the year because of your policies, and because Congress will drag its feet in granting relief to distressed homeowners.

Bernanke's thinking can be discerned quite plainly by the second page of Bernanke's 1983 paper, which is surprisingly readable. See, Ben S. Bernanke, "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June. http://fraser.stlouisfed.org/docs/MeltzerPDFs/bernon83.pdf


Here's a string of citations that shows the evolution of Bernanke's thinking on the subject. His emphasis on bankruptcy is clearly seen in a paper he wrote two years earlier,

Other versions of this item:

Article
Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June. (restricted)
This item is featured on the following reading lists:

Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-80, August. (restricted)
Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 207-37, April. (restricted)
Bernanke, Ben S, 1981. "Bankruptcy, Liquidity, and Recession," American Economic Review, American Economic Association, vol. 71(2), pages 155-59, May.
Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. (restricted)
Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April. (restricted)
Abel, Andrew B. & Mishkin, Frederic S., 1983. "An integrated view of tests of rationality, market efficiency and the short-run neutrality of monetary policy," Journal of Monetary Economics, Elsevier, vol. 11(1), pages 3-24. (restricted)
Other versions:
Andrew B. Abel & Frederic S. Mishkin, 1983. "An Integrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy," NBER Working Papers 0726, National Bureau of Economic Research, Inc. (restricted)
Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January. (restricted)
Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
Other versions:
Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June. (restricted)
Robert J. Gordon & James A. Wilcox, 1981. "Monetarist Interpretations of the Great Depression: An Evaluation and Critique," NBER Working Papers 0300, National Bureau of Economic Research, Inc. (restricted)
Full references

[On the Road]

4. Is This What the Headline is About?

Even with credit markets thawing, Fed officials see unemployment persisting at 8 percent or higher through the final three months of 2010.

All recoveries are jobless recoveries for a period of time. Given the dangers of a complete collapse last six months, that would not be too bad an outcome.