Punting On The Recession

Ben Bernanke has been profoundly bad as Fed Chairman (although the bar was set pretty low by Alan Greenspan . . .), and his predictions and commentary have been about as wrong as one could get from someone in a position of serious responsibility. After all, he is, for all intents and purposes, as head of the Open Market Committee, the person responsible for setting the value of the dollar (by controlling the interest rates, the OMC sets the price of money, as it were). I realize that investors and others are looking for something resembling anything like a silver lining right now, but why they would latch on to anything he says, considering his track record, is beyond me.

In his semiannual report to the Senate Banking Committee, Bernanke predicts the economy is likely to keep contracting in the first six months of 2009. But he also says "there is a reasonable prospect" the recession will end this year. He warns that a recovery will require getting credit and financial markets to operate normally.

A "reasonable prospect". There is a "reasonable prospect" I will be a Power Ball millionaire, except, of course, I don't play the Lottery. There is a "reasonable prospect" for all sorts of things. This is one of those phrases that, should one sit for a moment and consider it, is really meaningless. All sorts of prospects are "reasonable". It is not Bernanke's job to blue-sky "reasonable prospects". He should step up and say that, as of right now, banks are still failing, the foreclosure rate continues to skyrocket even as home values continue to tank. He needs to be honest enough to say that he has no friggin' clue what's going to happen, and the recession could end in six months or could last three years.

In other words, the markets, looking for any ray of hope, latched on to Bernanke's words, not realizing that he was actually punting from his own end-zone, hoping it would just keep rolling and be touched by his own teammates inside the ten at the other end of the field. It has happened, and it is a reasonable prospect. That doesn't mean you set your players accordingly.