Amusing Musings

Bernanke Says Unemployment Takes a Toll on Families (Update1)

By Scott Lanman and Steve Matthews

June 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said he’s concerned about the toll that joblessness is taking on Americans and that the central bank is trying encourage lending to creditworthy companies.

“High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole,” Bernanke said today at a Fed-hosted forum in Detroit, where the jobless rate exceeded 24 percent in April.

Bernanke, speaking to an audience that included executives from JPMorgan Chase & Co. and auto supplier BorgWarner Inc., expressed “guarded optimism” for a loosening of the credit constraints that have held back the economic recovery. His appearance was part of a series of trips that last month took him to a Tasty Baking Co. plant in Philadelphia.

The Fed chairman spoke a day before a Labor Department report that is forecast to show payrolls expanded for a fifth straight month. Two regional Fed bank presidents spoke today about the need to eventually raise interest rates from a record low, in part to head off the risk of inflation.

Atlanta’s Dennis Lockhart said in a speech that rates may need to be increased even while the unemployment rate remains high. Kansas City’s Thomas Hoenig, who’s dissented from the central bank’s pledge to keep rates low for an “extended period,” predicted that the recovery has the momentum to sustain itself and said the Federal Open Market Committee should raise its benchmark rate to 1 percent within a few months.

Laying the Groundwork

“More of the FOMC are laying the groundwork of saying what the environment might look like for when the Fed might move,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, and a former Fed researcher. “They realize it is going to be very tough as unemployment will still be high when they move and a lot of people are not going to be happy.”

Tomorrow’s Labor Department report will show that payrolls expanded by 536,000 jobs last month, the most since 1983, as the government hired temporary census workers and private employment increased, according to a Bloomberg News survey of economists. The unemployment rate probably fell to 9.8 percent from 9.9 percent.

Lockhart told reporters after his speech that he’s “still comfortable” keeping the Fed’s low-rate pledge “for the foreseeable future.”

Policy makers are seeking to encourage the flow of credit that would allow small companies to expand and hire, bringing down the jobless rate from close to a 26-year high.

‘Collective Challenge’

“Our collective challenge is to help ensure that creditworthy borrowers have access to credit so that, should they choose, they can expand their businesses or increase payrolls, helping our economy to recover,” Bernanke said at the event at the Chicago Fed’s Detroit branch. Michigan has the nation’s highest unemployment rate at 14 percent.

The Fed has kept the main interest rate close to zero since December 2008 to stoke job growth after the worst recession since the 1930s. In its statement in April, the FOMC repeated its view that “tight credit” is restraining consumer spending.

In Detroit, home to General Motors Co., Bernanke said the central bank is telling field examiners to encourage lending to creditworthy businesses. Outstanding loans to small businesses have declined to about $660 billion in the first quarter of this year from almost $700 billion two years ago, Bernanke said. It’s “difficult to answer” how much of the drop comes from declining demand and how much from supply, he said.


Ben Bernanke says many things to keep us amused. How can an educated man continue to believe the impossible and promote the improbable?

The solution, according to him, is more credit in an over-leveraged economy. He expresses "guarded optimism" in the recovery. Even Thomas Hoenig gets in on the act and says that we need to raise rates because the recovery "sustain itself". Toward the end of the article the FOMC states that the problem is tight credit, in other words, more debt is needed to sustain a recovery.

Yet again, the central bankers and policy makers fail to grasp reality.

The problem of debt is that of lead poisoning.
As it builds up in the system, symptoms of toxicity appear. The solution then, is not to give the patient more lead, but to purge his system of the toxin.

In the case of an over indebted economy, the answer is clear - We need deflation and deleveraging and the pain that accompanies it.