Federal Reserve Chairman Mr. Ben The-Sub-Prime-Crisis-Is-Contained Bernanke says that he has confidence in the recovery:
Federal Reserve Chairman Ben Bernanke told Congress Wednesday that he has confidence the unfolding economic recovery will have staying power, although it won’t be strong enough to bring quick relief to high unemployment.
…
“Addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult,” he warned.
On the economy, Bernanke seemed slightly more optimistic that the fledgling recovery will keep on going after massive government stimulus fades later this year. Incoming economic barometers suggest that growth in demand by consumers and businesses “will be sufficient to promote a moderate economic recovery in coming quarters,” he said.
Consumers are spending again after having cut back sharply during the recession. Going forward, consumer spending should be helped by a gradual pick up in jobs, a slow recovery in household wealth from recent lows and some improvement in the ability to get loans, Bernanke said.
Yes, it does seem consumers are spending again…. but where, exactly, is that money coming from?
Several analysts have suggested that consumer spending is being driven by money that should be going towards mortgage payments:
Here’s a provocative thought: what if ‘extend and pretend’ within our nation’s troubled mortgage markets is actually providing a lift to consumer spending? It’s not as far-fetched as the idea might initially sound, and it might help explain some interesting data we’ve seen as of late — and it also might explain why the statistical recovery we’re seeing now doesn’t really feel like a recovery to most Americans.
[source: Housing Wire]
We’re talking about roughly 7.4 million loans that are considered ‘non-current.’ That’s a lot of money hitting the economy that otherwise wouldn’t be if homeowners were making their monthly payments:
Even if you assume that just half of the current 7.4 million currently delinquent mortgages fit this sort of ’spending profile’ (that is, they are spending their mortgage) and you assume a $1,000 median monthly mortgage payment for most U.S. homeowners — you get a $3.7 billion boost per month to consumer spending. It’s certainly enough spending to matter in the overall scheme of things.
[Source: CNBC]
What about that improved ability to get loans that Mr. Benrnake says may be responsible for improved consumer spending?
Let’s take a look at the Consumer Credit Rate of Change chart, provided by Mr. Denninger at Market Ticker:
Looking at this chart you may see a small uptick in the January 2010 rate of change, so Bernanke is right about that – we are seeing more credit for the consumer. The problem is, for those who haven’t noticed, interest rates are going through the roof, and I, for one, am not interested in paying 30% interest rates that will saddle me with debt for the next 20 years, especially in an environment still plagued with uncertainty. If the banks get hit with another crisis (which they likely will) then chances are that those red and blue lines are going to head south yet again. Remember, this crisis was basically caused by a complete collapse of our credit markets, and we are probably not done cleansing out the over leveraged credit system just yet.
In regards to the recovery in household wealth, we caution our readers that we believe he is referring to the stock market and the gains you have seen in your 401k and IRA in the last 12 months. The stock market is currently valuing earnings that are simply conjecture. The GDP has not recovered significantly enough at this point to justify the value of most stocks and you may very well see your household wealth evaporate even more quickly than it has recovered in the last year.
Mr. Bernanke did point out that we still have some problems in housing:
Bernanke said weakness in the housing and commercial real-estate sectors is putting “significant restraints” on the pace of the economic recovery. And, the poor fiscal conditions of many state and local governments have led to continuing cutbacks in workers, another force that will hold back the recovery, he said.
What would happen to our recovery, pray tell, if the the housing and commercial real estate markets went into another free fall? Would that hamper it maybe a little bit?
In our view, this is exactly what is about to happen.
We direct our readers’ attention to the following graph, which we have published before when discussing the Second Wave of the Mortgage Meltdown:
You see that big Mount Everest looking peak in 2011, for which the climb is beginning right about now?
That all but guarantees that any household wealth and recovery in household value which you experienced in the last 12 months is about to be destroyed over the next 2 – 3 years.
Couple that with the fact that there are millions of delinquent mortgages sitting off the books, as evidenced by this recent activity from Bank of America, and you can probably guess what will happen to home values and this recovery.
What we have experienced thus far is merely an intermission, not a recovery.
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The United States financial system is toast. For you realists; invest in arable land, precious metals, food, and the ability to defend yourself.  Get out of U.S. Teasury bonds and the U.S. dollar except for 3-6 months living expenses.  For anyone who wants the truth on what is happening I’d suggest you visit King World News, Karl Denninger’s website, and ZeroHedge.    Â
For those of you who voted for hope and change no action is required.     Â
Paul Revere,
Great advise. I agree with what you wrote except the last part. The USA was pretty much hollowed out under 8 years of Bush. Bush nearly doubled the national debt, until Obama came along. I don’t agree that people should blame the nation’s fiscal problems on Mr. Obama alone. The problems have been festering for decades. In the last presidential elections we had a choice of Obama or McCain. Obama seems the choice for positive change. McCain would have been the choice to continue Bush’s failed policies. So I optimistically voted for Mr. Obama. AND, I’ve been so, so disappointed as he has continued increasing and escalated the national debt and so on. He was the candidate for change, but became the president of the status quo. This nation did not suddenly begin to collapse in the bast year. The problem has been brewing for decades under Democratic and Republican governance. Just blaming the Dems for all the nation’s problems isn’t going to get us anywhere. Both parties have sold us out for their own gain and yielded to corporate interests over the people’s interests time and again. It’s time to vote both parties out  of office and install new leadership. The Dems and Republicans are just corporate tools now and not different from each other than Pepsi is from Coke. Pepsi and the Dems are a little sweeter than Coke and the Republicans but they are essentially the same product. Let’s look for new “products” together. Let’s not let ourselves be used as tools to fight against each other while they stay in power. Their tactics of divide and conquer have polarized the nation so much that it’s become hard for people to find common ground.
THERE IS NO RECOVERY AND THERE NEVER HAS BEEN A RECOVERY. IT WAS ALL STIMULUS.
Stimulus doesnt fix capitalism. Capitalism fixes capitalism. The fact that our government didnt let the banks and housing market fall did nothing more than create a much bigger fall (bubble) in the near future.
We are on the verge of the biggest economic collapse in world history.
The FACT IS:
Stimulus did nothing but allow our debts to grow exponentially, while changing NOTHING economically.
It did in fact create the Bubble of all Bubbles.
Gerald Celente says the same exact thing.
Too late for me.I lost my Home and my job 3 months ago .Living in homeles shelter and loseing everything you got but your life is almost as good as being dead. But soon many will be in my company so at least ig ot that to look foreward too !
Hmmm…
I just ran Bernanke’s comments through my Bernanke-Speak Translator (patent pending), which I’ve carefully developed based on his track record with respect to predicting economic conditions over the past four years or so.
This is what came out:
“We are &%#@ed.”
Just a few of todays headlines!
http://www.zerohedge.com/article/march-foreclosures-surge-absolute-record-369491-19-jump-february
http://www.mybudget360.com/banking-profits-record-foreclosure-filings-peak-american-economy-funding-wall-street-gambling/
http://financemymoney.com/million-dollar-homes-los-angeles-shadow-inventory-foreclosures/?source=patrick.net
http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html?source=patrick.net
http://www.nytimes.com/2010/04/15/business/15mortgages.html?partner=rss&emc=rss
http://financemymoney.com/million-dollar-homes-los-angeles-shadow-inventory-foreclosures/?source=patrick.net
Comments….. The mind games the elite like to play. “One day we tell them the truth and the next we tell them falsehood this way they will have no opinion at all”. That’s what you call double speak and the art of neutralizing the mind.We have being seeing a lot of this lately, but those who live by the truth don’t have to worry about being tossed around by these economic waves and opinions.
I believe that there is no difference if the end is near or far.
What i see daily, is a system which feeds the elite and has fixed a tough mechanism of law and order.
They are ready to break any kind of resistence, they have their money and goods safe in Swiss banks, and have built safehouses for them and their precious families.
As many of you support, our only chance is to be self sufficient. To be able to produce what we eat, and if possible sell some to earn currency.
A friend in Ireland did that by selling his house in Dublin. He bought a farm in Cork, and now he has his safehouse ready. He produces everything, his kids grow-up in the country and his wife is an equal assistant for the SHTF case.
Be safe everybody
“Addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult,†he warned.
Why didn’t he do that two years ago instead of postponing them?Â
They needed to loot the treasury first.
But here is the real good news. the U.S. debt is nothing but a fiction that can only be paid by a fiction.  They lent credit, not money.  The U.S. government can’t create a debt and then put it off on you or me, especially when they don’t have oury signature on the loan papers.
Your current share of the U.S. Debt is ZERO dollars. unless you care to continue calling Federal Reserve Accounting Unit Devices (FRAUDS , their name for them) actual dollars.
If we have nothing, as far as money goes, we have nothing to lose. We do not have any money of substance, so they cannot collect in substance. At least not while I have my guns, which I will protect with my guns.
Gods Creation,
““Addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult,†he warned.
Why didn’t he do that two years ago instead of postponing them?Â
They needed to loot the treasury first.”
I agree with this.