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Fed Chairman Can't Quite Utter the R Word

It's (semi) official: We're in a recession.

The Federal Reserve chairman didn't come right out and say it in his appearance before the Joint Economic Committee today, but in his carefully-hedged, deliberate mumbo jumbo, Ben Bernanke delivered a message as stark as bread lines and shantytowns.

"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008, and could even contract slightly," he testified.

It didn't take an economics PhD to crack Bernanke's code: Two quarters of economic contraction is the textbook definition of a recession. "Am I correct in understanding that you now believe a recession is possible?"
asked committee Chairman Chuck Schumer of New York.

"A recession is possible," Bernanke affirmed, setting the news wires abuzz.


If anything, Bernanke is a bit late to the recession party. His predecessor, Alan Greenspan, wrote recently that the current financial crisis will be "the most wrenching since the end of the Second World War."

And Martin Feldstein, whose National Bureau of Economic Research is the official arbiter of recessions, forecast a "substantially more severe" downturn than usual. "The situation is very bad, the situation is getting worse, and the risks are that it could get very bad," he said last month.

But the Fed chairman's willingness to invoke the R-word carried particular weight because of his consistent habit of understating the nation's economic problems. Just six weeks ago, he was still forecasting "sluggish growth" for the first part of this year. Last July, he forecast that 2008 would be a time of "strengthening" above an already "moderate pace."

His view of the subprime lending debacle has been equally cheerful. A year ago, he testified to Congress that the subprime mortgage problem "seems likely to be contained." With characteristic optimism, he forecast:
"We don't see it as being a broad financial concern."

With that history of prognostication, Bernanke's warning today of a "possible" recession meant it might be a good time for people to hide their valuables and get a shotgun. "He came as close as he possibly could given his responsibility to be a bit of a cheerleader," Schumer, the Democratic chairman, judged after the recession session.

Bernanke spoke in a weaker voice than usual. He sat on the front of his seat, hunched over the witness table, fingers tightly interlocked and veins protruding at the temple. He sat still and patient as Schumer, in his opening statement, gave shrill warnings about "alarming" economic news and risk of "the kind of meltdown we saw in the Great Depression."

Sen. John Sununu (R-N.H.), whose already iffy prospects for reelection could be dashed by a recession, begged Bernanke to explain "the differences between the challenges the country was facing during the Depression and today." Bernanke, a Depression scholar, indulged Sununu in a discussion of Andrew Mellon's tenure as Herbert Hoover's Treasury secretary.

The history lesson must have inspired Sen. Bob Bennett (R-Utah), who traced the origins of the current mortgage crisis to the time "when people were buying tulip bulbs in Holland" -- during the 17th century. When the tulip bubble burst, Bennett explained, "the devastation that occurred in the Dutch economy destroyed it for 100 years."

But all the talk of Mellon and tulips couldn't disguise the fact that the economy is in what Bennett called a "liquidity crisis," Sununu dubbed "this crisis" and even Bernanke labeled "the financial crisis."

And the Democrats on the committee were inclined to blame Bernanke for failing to keep the crisis from turning into an all-out recession. "How effective do you feel when you're not having the type of impact I would anticipate you would have?" taunted Rep. Loretta Sanchez (D-Calif.)

The Fed chairman explained that he has been "fighting against the wind."

"I see you doing this and I don't really see the kind of effect I would hope to see," Sanchez continued, asking what "other tools might be in your bag of tricks."

"We only have so many general types of tools," Bernanke explained.

Rep. Elijah Cummings (D-Md.) pleaded for help. "You're the expert. You're the one that we depend on. You're the superstar," the congressman said.

The superstar did not have a ready answer. "We're going through a tough period," he soothed.

But does "tough period" mean a recession? Rep. Maurice Hinchey
(D-N.Y.) sought clarification.

"It's possible -- not certain, but possible -- that the first half of this year will be slightly contractionary," Bernanke repeated, pointing out that an official ruling would be made "well after the fact."

That answer didn't satisfy Hinchey. "I think we're in a recession now," he said. "I think we've been in a recession for some time, and I think that that recession is going to continue to get worse ... six months from now, we may see it in a very, very bad situation."

The Fed chairman was not prepared to sound that alarm -- yet. "You know," he told the congressman, "I wish I had a simple answer for you."

By Dana Milbank  | April 2, 2008; 5:14 PM ET
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You do not have to be a mathmatical giant or a high powered stock broker to know that the economy is in big trouble all over the country. Bernanke did not have to splash over the news media what the average person knows. No money, no jobs, outrageous fuel and food prices, RX costs through the ceiling. IS THIS PROSPERITY.
We can thank those crooks in Washington! and with a fraud like Obama and his gang of racists nothing in the near future will ever be right for the man on the street. Your either Rich or your poor, there is no inbetween anymore.

Posted by: lynn parkwe | April 2, 2008 6:22 PM | Report abuse

well sure looks like we need 20 million illegals legalized, that should do wonders for the Fed and our Representatives ability to hide from the R word (recession)

We're going to skip the R word and go directly to the D word do not pass go, do not collect $200.00, go DIRECTLY to Depression.

Three things to get our country on track again.

1st get the HELL out of Iraq and the nation building Business, ALL NATIONS, bring home the legions and let the world handle its own problems.

2nd Bring BACK our manufacturing as in Electronics, Cloths, peices and parts, those cheap imports that Clintoon and Bush 1 and 2 promised us if we let them ship out our manufacturing base just got MORE expensive then if we'd have kept it here.

3rd Start arresting and jailing employers of Illegals no matter what country they come from. That will CREATE jobs for AMERICANS and those LEGALLY here.

4th This will never happen but it would be nice, END TENURE for teachers, their jobs should be no different then anyone elses, you do it right and you get to keep it. Start teaching the three R's again and let the parents teach their kids about sallies two mommies and self esteem if they wish to.

Until 1 through 3 are done we're going to continue in a full on nose dive.

Add as number one (4 things now) NO BAILOUTS of Wallstreet or the fools they suckered, it is NOT my responsibility as a tax payer to give money hand over fist to those who screwed up, I should NOT be responable for their learning experience.

Posted by: John C. Page III | April 2, 2008 6:39 PM | Report abuse

So, John C. Page III, I take it you have no understanding of trade, economics, or generally how to improve American society. Please keep your comments to yourself. You might trick a politician into siding with your beliefs and then the U.S. would really be in trouble.

Posted by: ADS | April 3, 2008 10:37 AM | Report abuse

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