Ben Bernanke Sees His Shadow
"Acta est fabula, plaudite!" (The play is over, applaud!) - Augustus Caesar
"Get gold, humanely if you can, but at all hazards get gold" - King Ferdinand V of Spain
"They say we're young and we don't know
We won't find out until we grow...
They say our love won't pay the rent
Before it's earned, our money's all been spent"
- "I Got You Babe", Sonny & Cher
This week houses one of the greatest days of any calendar year. It is a day eagerly-awaited by many around the world and provides just about the only employment for such characters as Staten Island Chuck, Smith Lake Jake, Balzac Billy and Sir Walter Wally. General Beauregard Lee makes his annual appearance as does Spanish Joe and even Dunkirk Dave, but each year, these would-be contenders have to bow down to the daddy of them all; the champion of champions, the one, the only, Punxsutawney Phil.
Yes, on Thursday, February 2nd, it was Groundhog Day again, when groundhogs and woodchuck, land-beavers and whistle-pigs are dragged from their burrows and cajoled into trying to see their shadow. Legend has it that, should the groundhog be able to see said shadow, it will retreat back into its burrow and prolong winter by a further six weeks whereas, if no shadow is to be found, Spring will come early.
The first Groundhog Day was celebrated in 1887 at Gobbler’s Knob (EB) in Punxsutawney, Pennsylvania and had its origins in the ancient tradition of Candlemass. That year, in a stroke of sheer genius that would bestow enormous financial benefit upon his town for the next hundred years and counting, a newspaper editor belonging to a group of groundhog hunters from Punxsutawney called the Punxsutawney Groundhog Club declared that Phil, the Punxsutawney groundhog, was America’s only true weather-forecasting groundhog. It really WAS that simple and this year, like many before it, literally tens of thousands of people will descend upon Gobbler’s Knob (EB) to witness the ‘prediction’ of a 15lb ball of fur who has absolutely no clue what all the fuss is about:
(Wikipedia): Modern customs of the holiday involve celebrations where early morning festivals are held to watch the groundhog emerging from its burrow. In southeastern Pennsylvania, Groundhog Lodges (Grundsow Lodges) celebrate the holiday with fersommlinge, social events in which food is served, speeches are made, and one or more g’spiel (plays or skits) are performed for entertainment. The Pennsylvania German dialect is the only language spoken at the event, and those who speak English pay a penalty, usually in the form of a nickel, dime or quarter, per word spoken, put into a bowl in the center of the table.
But wider familiarity with the event across the globe is due, in large part, to the eponymous 1993 movie, ‘Groundhog Day’, which starred Bill Murray as egocentric Pittsburgh weatherman Phil Connors who finds himself trapped in a timeloop on February 4th and proceeds to spend the bulk of the movie dreaming up all kinds of fanciful schemes only to end up with the same result; waking up at 6am to Sonny & Cher’s “I Got You Babe”.
February 2012 finds the world in its own timeloop as we remain trapped in our very own Groundhog Day watching politicians try endless new and inventive ways to ‘fix’ a simple problem of way, WAY too much debt. It isn’t complicated. The world grew fat and happy on the sugar rush provided by a decades-long injection of cheap and easy credit and now it’s time for the crash diet. Trying to avoid the ‘crash’ seems to be uppermost in everybody’s mind.
Interesingly enough, the Fed’s very own Groundhog Bailabankout Ben testified before the House Committee on the Budget on February 2nd and, having been dragged from his burrow into the day-light, Ben saw all kinds of shadows:
While conditions have certainly improved over [the last two and a half years], the pace of the recovery has been frustratingly slow, partcularly from the perspective of the millions of workers who remain unemployed or underemployed. Moreover, the sluggish expansion has led the economy vulnerable to shocks...
The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary...
Although real consumer spending rose moderately last quarter, households continue to face significant headwinds. Notably, real household income and wealth stagnated in 2011, and access to credit remained tight for many potential borrowers...
...we still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment: More than 40 percent of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade...
Globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in Europe. The combination of high debt levels and weak growth prospectsin a number of European countries has raised significant concerns about their fiscal situations, leading to substantial increases in sovereign borrowing costs, concerns about the health of European banks, and associated reductions in confidence and the availability of credit in the euroarea...
risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home...
The Fed’s groundhog also kindly pointed out to the House Committee the task facing them:
Unfortunately, even after economic conditions have returned to normal, the nation will still face asizable structural budget gap if current budget policies continue. Using information from the recent budget outlook by the Congressional Budget Office, one can construct a projection for the federal deficit assuming that most expiring tax provisions are extended and that Medicare’s physician payment rates are held at their current level. Under these assumputions, the budget deficit would be more than 4 percent of GDP in fiscal year 2017, assuming that the economy is then close to full employment. Of even greater concern is that longer-run projections, based on plausible assumptions about the evolution of the economy and budget under current policies, show the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt toGDP rising rapidly. This dynamic is clearly unsustainable.
These structural fiscal imbalances did not emerge overnight. To a significant extent, they are theresult of an aging population and, especially, fast-rising health-care costs, both of which have been predicted for decades...
To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable paththat ensures that debt relative to national income is at least stable or, preferably, declining over time. Attaining this goal should be a top priority.
And before opening the floor to questions, Bailabankout Ben threw one more log on the fire:
Although we cannot expect our economy to grow its way out of our fiscal imbalances, a more productive economy will ease the tradeoffs that we face and increase the likelihood that we leave a healthy economy to our children and grandchildren.
About Grant Williams
Grant Williams Archive
|09/06/2013||A Barrel of Monkeys||story|
|08/21/2013||The Hypocritic Oath||story|
|07/23/2013||Horse, Pig, Helmet, Man, Woman||story|
|06/25/2013||Call My Bluff||story|
|06/05/2013||Deus Ex Machina||story|
|05/30/2013||What On Htrae Is Going On?||story|
|04/10/2013||A Date Which Will Live in Yenfamy||story|