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What follows is a synopsis of an article by well-known
economic analyst Martin Weiss.
In his testimony before Congress recently, Ben Bernanke gave us a glimpse of the disasters now sweeping through the U.S. economy. But there were four important things he did NOT talk about:
FIRST and foremost, what's CAUSING the economy to sink?
Since the stock market has not yet crashed, interest rates have not yet surged, gasoline prices have not skyrocketed, and there has been no recent debt collapse, market shock, or terrorist attack, what could it be? What is the invisible force that's gutting the housing market, driving consumer confidence into a sinkhole, and killing the recovery?
Bernanke won't say. But the answer is clear: The recovery had very little substance to begin with. Rather, it was in essence a mirage -- a mirage produced by Washington's massive bailouts, stimulus programs, and money printing.
Put another way, underneath the mirage of recovery, the recession never really ended. Yes, we saw some growth in GDP. And yes, thanks to that growth, some companies are still reporting better earnings (the news that recently spurred a rally in the stock market). But at the core of the economy, the problems that started the recession are still there.
SECOND, Bernanke failed to point out that:
The U.S.housing market is now locked in a chronic, long-term depression, while housing starts -- the most important measure of the housing industry -- is still a disaster zone. Beginning in January 2006, they suffered their worst plunge in recorded history -- from an annual rate of 2.3 million to a meager 477,000 in April 2009.
Thus, in just three years, 79 percent of America's largest industry, impacting more Americans than any other, was wiped away.
Then, despite a series of government agency programs to shore up the industry . . plus $1.25 trillion poured in by the Fed to buy up mortgage-backed securities . . plus a big tax credit for new homebuyers, housing starts perked up ever so slightly: They recovered to an annual rate of 612,000 in January of this year. In other words, the "recovery" was so small it took back just 7.5 percent from the prior fall. So, even after massive government efforts, and even at the highest point in its recovery this year, the housing industry recouped less than one-tenth from its historic three-year fall beginning in 2006.
Even worse, the housing industry has now resumed its decline which has brought on the growing phenomenon of widespread "strategic defaults" on home mortgages. These are defaults by homeowners who can afford to meet their monthly mortgage payments, but have deliberately decided to stop paying. They realize their home is worth less than they owe on the mortgage -- transforming it into a losing asset they'd prefer to give up. They know their bank is already overwhelmed with foreclosures and won't get around to evicting them for as long as two years, which allows them to live in the house rent-free. They also know that this tactic can provide them tens of thousands of dollars in extra savings. So they're defaulting en masse and getting away with it. And the wealthy are doing this with even greater frequency than those with smaller incomes.
Unfortunate results of this:
- New supplies of foreclosed homes will be coming onto the market as far as the eye can see ...
- Many bankers would rather cut their wrists than finance new homes, ...
- A new slump in housing that's worse than even the pessimists were expecting.
THIRD, despite his now-famous quote that this is "the worst labor market since the Great Depression," Bernanke failed to reveal that:
Official government data grossly understates the magnitude of unemployment; he did not mention that the percentage of long-term unemployed in America is the worst it's been since the government began keeping records in 1948. Two facts about this:
- Fact #1: A record 4.39 percent of the work force -- or 46.2 percent of the unemployed -- have been out of work for 27 weeks or more. That's DOUBLE the worst level ever recorded and TRIPLE the peak level seen in five of the past six recessions.
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