Happy Friday everyone,
At the annual powerful persons confab in Jackson Hole, Wyoming, the chairman of the Federal Reserve, Bernanke, said that “economic activity appears to be leveling out in the United States and abroad. He also said that it was likely that there would be a return to growth in the near term. Most importantly, he said that the economic recovery “is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
All of these comments are in line with comments made mid-summer by the Fed chairman. Why is this important? The consistency of the messages means that the economists at the Federal Reserve do not see anything in their data that would derail a recovery. Additionally, the fact that the recovery is expected to be slow is significant as well. As we have discussed, banks gorged themselves on cheap debt and used it to create a massive real estate bubble. Big bubbles always require cheap money and while money remains very cheap banks are still puking up the millions of bad mortgages that were underwritten. That means that the economic recovery is likely to be based on more solid fundamentals and not just inexpensive capital.
Jason
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