The July numbers, accompanied by the June numbers in parentheses (all of which were downwardly revised in July):
Personal income growth: 0.0 (0.3)
Personal spending growth: 0.0 (0.1)
Consumer prices: 0.0 (0.1)
The Fed is getting a little worried!
Ah, but what will the Administration’s confidence fairies and those vaporous bond market vigilantes think?
Gorilla answers: “Who cares what they think? It’s long past time for some serious action!”
CPI is basically flat to negative and has been so for months…
So, what’s the Fed doing?
Promising to act if things get worse, doing nothing until things get worse, and completely missing its inflation target.
A central bank with less credibility can only be found in Euroland.
So, what’s the Congress doing in a deflationary environment with roughly 5 unemployed Americans for every advertised job opening?
Not extending unemployment benefits, caving into the deficit fetishists, and passing everything except a jobs program.
Gorilla says: “It’s very deflating when no one in Washington seems to care about the worst economy in 70 years!”
In Japan, it’s all about deflation!
And they’ve got what we’ve got: a classic liquidity trap.
Lots of money swirling around, nobody wanting to use it for anything other than hoarding against losses, interest rate at zero, prolonging a long slump longer.
Gorilla asks: “Are we the next blue fin tuna on special at the Deflation Cafe?”
Core consumer prices fell 0.1% last month, the first time that’s happened in 28 years!
Back then, interest rates were sky high as the Fed tried to wring inflation out of the economy.
Today, interest rates are up against the zero bound.
The Fed remains obsessively worried about inflation, when it appears there’s some chance, perhaps not great but certainly greater than any similar chance in the past 70 years, we’re heading for a Japan-like deflationary spiral.
Gorilla thinks: “The hawks think the field mouse is fatter, when he may in fact about to be extinct!”
Japan is in deflation again, and America could well be on the way there.
The problem is with inflationary expectations: there aren’t any.
With short-term interest rates at zero, monetary policy can’t do very much more to help the economy along.
Quantitative easing, that is the practice of printing and passing on lots of money by central bankers like Helicopter Ben Bernanke, has not been very successful: banks are simply hoarding the money to mask their own insolvency.
What’s needed is a massive stimulus package, on the order of $2-3 trillion.
And there’s no chance of that happening, so the economy will continue going nowhere.
The only alternative at this point is for the Fed and others central banks to raise their inflation targets, to say 3-4%.
This will signal to the markets that interest rates are going nowhere for at least a couple of years, and perhaps encourage some lending, but it will also encourage new bubbles like the dollar carry trade.
Gorilla says: “We need to jettison the WIN buttons pronto or we’ll all become loss leaders!!!”
Paul Krugman says it’s now even money we’ll have a lost decade like Japan.
Brad de Long says there’s a 5 percent chance of a Great Depression-like downturn, bigger than the one we’ve just experienced.
Martin Wolf says we’ve again missed the boat on speaking plainly to the Chinese.
Today’s numbers say that, despite wasting billions on cash for clunkers and home buying tax credits, deflation remains a big problem, the housing bust will continue, oh, and unemployment remains above 10%.
The need for action is very clear, but that’s not what our leaders are offering.
Instead, they seem worried about utterly trivial things, from an extra $100 billion/year to expand health insurance to social program deficits in the years after 2030.
Anything in the here and now appears to be well beyond their imaginations.
Goingbackwardville and Movingforwardville are currently intersecting in Oblivionville.
Congress should be passing a second stimulus, to the tune of at least $1 trillion ($2-3 trillion would be even better!), with emphasis on the following: job creation via a new WPA with emphasis on road building, home and corporate energy efficiency, and public transit, guaranteeing state government deficits for the next 3 years, and continuing unemployment and unemployed health care benefits for the next 2 years.
The President needs to start leading, not engaging in further meaningless rhetoric and cautious poll gazing.
Gorilla is worried: “Round tables don’t put food on the table, and pointy heads only burrow deeper into the sand!!!”
