Wednesday, July 22
Posted 11 a.m. Eastern
Fed Chairman Ben Bernanke's appearance before the House Financial Services Committee yesterday lacked any unexpected revelations. One point in his prepared remarks did catch my attention, however.
"Although the unemployment rate is projected to peak at the end of this year, the projected declines in 2010 and 2011 would still leave unemployment well above FOMC participants' views of the longer-run sustainable rate."
Reading between the lines, Bernanke seems to suggest we're in for another jobless recovery. My own opinion is that it will be the mother of all jobless recoveries. Sure hope I'm wrong.
Regarding the economy: On July 31, the initial estimate of second quarter economic output, affectionately known as Gross Domestic Product, or GDP, will be released. There is a possibility that the economy, either based on initial estimates or subsequent revisions, will eke out some growth.
Now, let's not get too far out over our skis but be cautious about interpreting this if it should come to pass. Here's why: Any growth posted by the U.S. economy will largely be due to a shrinking trade deficit, as imports (what we buy) have fallen much faster than exports (what we sell). So bottom line, any growth in the U.S. economy during the second quarter is more testament to the resilience of foreign consumers than it is American consumers.
Reader comments: Here are a couple reader replies to my last post suggesting some much-needed improvements to the Making Home Affordable mortgage plan.
"I would like to write a comment about your proposal to let homeowners who lost their jobs not to pay their mortgage for number of months and then get reduced payments if their new income is lower. I think it's nonsense.
"If something like that should happen, I would like to see all the renters get similar provisions. And reduced rents as well once the income gets lower."
Landlords are in a position to make those concessions if they choose and if their own financial circumstances allow. I know of some that have suspended rent payments while their tenants are out of work.
"Your thoughts on highlighting the need to increase the refinancing eligibility caps to at least 150% addresses a vast amount of responsible homeowners who would benefit from refinancing to more affordable home loans. Speaking from experience, my home is over 50% upside down on the mortgage balance to home value ratio. I agree that this approach is effective, it is not another bailout, but a guarantee for the creditworthy on good standing loans that are on the books of government entities of 'Fannie' and 'Freddie'."
There are some others I hope to post in an upcoming blog entry. Stay tuned.