Tags: sean | hyman | recession | economy | stimulus

I Was Honest With You Long Before Fed Officials Were

By    |   Monday, 02 August 2010 08:39 AM

If there’s one thing that I know about central bankers, it’s that they have to delve into bad news as gradually and as calmly as possible.

This way, they don’t spook the markets too badly.

That’s why the Fed has been “easing” into a position lately that is cautious because the economy is growing soft again.

By their own admission, some of the Fed’s economists have stated that they may have to warm up to “at least the possibility of a double-dip recession.”

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But now, former Federal Reserve Chairman Alan Greenspan has jumped on the same bandwagon. Federal Reserve Chairman Ben Bernanke and Greenspan are singing the same tune now.

Greenspan was on NBC’s “Meet the Press” and stated that the economy has “paused” and that it feels like the U.S. economy is in a “quasi-recession” even now.

He stated that a double-dip recession was possible if housing prices decline again.

He also feared that there could be another round of foreclosures coming if that happened.

These are things that I’ve been telling my readers for months now.

I can afford to be more upfront and honest than they can because what I say won’t shake up the U.S. economy and global economy, like words from their mouths.

So here are a few more of my thoughts along these lines.

The GDP growth of the U.S. economy is slowing at a very rapid pace.

For instance, once the Fed poured a ton of money into the economy, the GDP of the U.S. rebounded to 5 percent in the last quarter of 2009.

However, in the first quarter of 2010, that number had diminished to 3.7 percent. Then in the second quarter, it’s fallen yet again to 2.4 percent.

I want you to mentally picture the negative slope of that growth rate. My gosh, in the span of two to three quarters, the GDP growth has cut in half. I don’t think that’s going to get better any time soon.

Why? Who’s going to rush in to buy a new home when the “reported” unemployment rate is at 9.5 percent (and is expected to increase back to 9.6 percent on Friday)? Even if it didn’t increase, it won’t head lower anytime soon. That being the case, homes are not going to be bought in great numbers. Therefore, home prices could very well slump some more in the coming quarters, especially with the GDP numbers diving like they have been.

Now, this week we will get the ISM Manufacturing and Services numbers. The manufacturing numbers have shown a slow down in the past two months. The services number has been negative for one month.

Also, the pending home sales numbers have been slumping lately and so have the weekly jobless claims numbers. You’ll also remember that last month we had a really bad NFP employment number, too.

So until there is a notable improvement in things like this, there will be no great economic recovery.

Therefore, the government will have to issue another stimulus package to reverse the diving growth rate. They’ll also have to do this to improve the sentiment out there and to help to keep stock prices from literally crashing.

Even Greenspan (while on “Meet the Press”) admitted that, “if the stock market continues higher, it will do more to stimulate the economy than any other measure we have discussed here.”

So the only thing that could even avert another recession for now would be for the government to stimulate the economy, impose another housing incentive program and go into the stock market to “prop it up.”

Even if they are successful in doing that, it will only delay the inevitable (and not prevent it).

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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If there s one thing that I know about central bankers, it s that they have to delve into bad news as gradually and as calmly as possible. This way, they don t spook the markets too badly. That s why the Fed has been easing into a position lately that is cautious...
Monday, 02 August 2010 08:39 AM
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