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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

September 22, 2011 at 9:04 AM

The Fed and the markets: What you need to know

Two developments are driving the fear in the markets today.

First, Wednesday’s statement by the Federal Reserve’s policy-making Federal Open Market Committee contained these words: “There are significant downside risks to the economic outlook, including strains in global financial markets.” Second, China’s manufacturing sector is on track to contract for a third straight month, its worst performance since the recessionary trough of 2009.

For months, as the economy has slowed and data have emerged showing the Great Recession was much worse than previously assumed, the conventional wisdom has clung to Ben Bernanke’s measured assurances that recovery was just around the corner. The FOMC statement finally dashes those hopes. (This is the same guy who said don’t worry about subprime just before that explosion).

Now the Fed is beginning to admit the depth of our troubles. Moreover, the central bank’s “twist” program is too small to make much of a difference, other than shafting those dependent on fixed-income investments and providing more hot money for gambling by the playerz in world markets. It will not stop the cash hoarding by successful companies. It will not bring loans to Main Street businesses or lower unemployment.

The real need is for a very large fiscal stimulus, aimed at infrastructure, job creation and filling the growing hole in demand. The 2009 stimulus was too small and poorly targeted. Yet meaningful new stimulus won’t happen because of political paralysis and D.C.’s Herbert Hoover obsession with cutting spending. The Fed can’t save the economy on its own. (p.s., inflation is not an issue — as if: Some inflation would actually help, if not preserve the short-term advantages of the banks).

China was expected to lead the world recovery. This has always stuck me as naive, because China depends on an export economy, which presumes customers elsewhere, especially in America, where most people are getting poorer. Now the data out of China are dashing this hope.

What now? Meg Whitman as CEO of besieged Hewlett Packard? Such is the cluelessness, self-dealing and cynical lack of seriousness among our elites. The pattern of delusion continues.

Comments | More in Bailout, Deficit, Federal debt/deficit, Federal Reserve, Great Recession

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