Ben Bernanke got in his helicopter and showered money around like there was no tomorrow.
If 2008 saw the collapse of the Capitalist Banking System and 2009 ushered in Global Recession and Deflation, what’s in store for 2010? Well, the fight to stop Great Depression 2 is far from over. In 2009 we saw the Keynesian Stimulus Cure and the Friedmanite QE Cure deployed around the world, but the next two economists to enter the world stage are Irving Fisher and Hyman Minsky, with their Reality Check and Moment, respectively.
In a nutshell, Keynes said the public purse should take over the role of the private sector in a downturn and maintain employment, but Friedman said Keynes was wrong and that expansion of the Money Supply would alone have prevented the Great Depression of the 1930s. The governments of the Anglo-sphere world weren’t sure which of these deceased economists was right, so went for both options.
Ben Bernanke, a confirmed Friedmanite who organized the latter’s 2002 birthday party, got in his helicopter and showered money around like there was no tomorrow, doubling the Fed’s balance sheet by $1.0 trillion to $2.0 trillion, actually by $12.0 trillion when guarantees and insurances are added in, while Obama threw $700.0 billion at “shovel-ready” Keynesian infrastructure projects.
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In the UK, Mervyn King was given £200.0 billion for his QE pot, amounting to one-sixth of GDP, and the government engaged in several stimulus programmes. And both governments engaged in massive bank bail-outs as well.
Did these cures work? Unfortunately, it’s impossible to measure the results. On the Keynesian side, the ‘Cash-for-Clunkers’ scheme in the US, termed as ‘Cash-for-Bangers’ in the UK as it rhymes with ‘Fish-and-Chips’, gave a much-needed shot in the arm for the beleaguered motor industry and sent liquidity down the biggest employment industrial artery in the economy.
The QE definitely propped up the busted banking system, which saved its life for the time being, but it’s still full of walking wounded. The evidence of success to date is still not gathered in: the US Q3 GDP showed economic expansion of 0.9%, but don’t believe one quarter’s figures – the ‘Cash-for-Clunkers’ scheme and other distortions could have caused this and now that scheme is over – and the UK Q3 GDP was still in contraction at 0.1%, which promptly caused a quivering Mervyn King to shower his final £25.0 billion of QE lotion over the limping economy.
None of this, however, has reversed the upward rise in unemployment, which is the key indicator, as it’s also the harbinger of further bank losses to come, from mortgage, auto, credit card, shipping and MBO/HLT loans, which are all still hurting and causing huge Q3 write-offs, $8.0 billion at Citigroup and $9.6 billion at BoA, with Barclays announcing £9.0 billion for 2009.
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Unemployment in the UK has apparently leveled off at 2.6 million at the moment, short of the 3.0 million+ confidently predicted. HM Treasury, however, got a shock when payroll taxes were 20% down on forecasts; when they looked into this shortfall, the mandarins discovered that many employees had opted for short-working rather than lose their jobs permanently.
So, as you were, adjusted unemployment is over 3.0 million. And it’s the same in the US, where unemployment is at 10%+, but U6, or wider unemployment, is at a whopping 16%. Only when real unemployment begins to come down can you say the recession is truly over.
Stephen Hill is economics editor of Spear’s and his book on the economic crisis, Countdown to Catastrophe (published February 2010), is available £20.00 + P&P direct to your preferred address. To order your copy now, email josh.spero@spearswms.com.
