Friday, August 21, 2009

Bernanke -- Half Right

Ben Bernanke says today, in Congressional testimony, that the economy "has stabilized" and that we have avoided catastrophe. Some would argue that catastrophe was never a possibility except in Bernanke's and Paulson's mind, but that aside. Now the question is will Obama's legislative agenda derail the recovery and derail job creation? Part of the answer depends upon whether Obama is successful in getting his agenda enacted into law. If Obama is successful, it is unlikely that the US will have any meaningful economic recovery. Worse, world attention will begin to focus on the credibility of the US Treasury market. The tremedous on and off balance sheet liabities of the US government are unsustainable even without the Obama agenda. But with the Obama agenda, the problems become much more serious much quicker.

If the Obama agenda collapses in the Congress, then things begin to look brighter. It would still require major surgery on medicare, medicaid and prescription drugs and some effort to return "free market" principles to the health care market. One wonders if there will ever be the political will to deal with these matters. But, sooner or later, either they will be dealt with or the US faces the inability to fund its ever-growing national debt.

But for now, don't expect much of a recovery in employment and not much in anything else. The US looks like the laggard in the world economy for now, absent sound economic policies from its government. Fortunately, some other other parts of the world aren't so foolish and there will be recovery elsewhere.

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