"Fed Survey Shows US Recession May Be Over"

http://www.politico.com/news/stories/0909/27052.html

Summers: High unemployment for years


The president’s chief economic adviser warned Friday that the nation’s unemployment rate could stay “unacceptably high” for years to come — a situation that would seriously complicate Barack Obama’s ability to convince Americans that he’s beating back the recession.

“The level of unemployment is unacceptably high,” National Economic Council Director Larry Summers said Friday. “And will, by all forecasts, remain unacceptably high for a number of years.”

Summers’ comments came in a briefing with reporters ahead of Obama’s speech in New York City on Monday, marking the one-year anniversary of the collapse of Lehman Brothers, an event widely regarded as having created a panic that caused the global economic meltdown.

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But as is usually the case in economic recovery, job creation continues to lag. The national unemployment rate is at 9.7 percent, a 26-year high, and Obama has repeatedly said he ultimately expects it to hit double-digits before beginning to fall again.

The economy lost 216,000 jobs in the month of August, which was fewer than the July number of 276,000. Overall, 6.9 million jobs have been lost in the recession, which economists call the worst since the Great Depression.

With his remarks about sustained high unemployment, Summers touched on one of the most sensitive issues in the economy, closely watched by average Americans as a key reading of the nation’s economic health.

Unemployment is probably the single most important statistic for Democrats eyeing the mid-term Congressional elections next fall. If the unemployment rate begins to decline, the White House may have an easier time convincing voters that its enormous stimulus spending and massive federal intervention into the economy were effective. But if all the White House’s enormous efforts are unable to move the needle on unemployment, a so-called “jobless recovery” could seriously hamper the president’s party in the mid-terms.
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http://www.bloomberg.com/apps/news?pid=20601087&sid=auZYSu9ljFUs

Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman

Sept. 13 (Bloomberg) -- Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.

G-20 Steps

“We aren’t doing anything significant so far, and the banks are pushing back,” he said. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”

G-20 leaders gather next week in Pittsburgh and will consider ways of improving regulation of financial markets and in particular how to set tighter limits on remuneration for market operators. Under pressure from France and Germany, G-20 finance ministers last week reached a preliminary accord that included proposals to claw-back cash awards and linking compensation more closely to long-term performance.

“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”

Global Economy

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.

“The question then is who is going to finance the U.S. government,” Stiglitz said.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.netDavid Tweed in Paris at dtweed@bloomberg.net
Last Updated: September 13, 2009 14:38 EDT

 

http://www.ft.com/cms/s/0/e6dd31f0-a133-11de-a88d-00144feabdc0.html

Economist warns of double-dip recession

By Robert Cookson and Sundeep Tucker in Hong Kong
Published: September 14 2009 15:01 | Last updated: September 14 2009 15:01

The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession, according to one of the few mainstream economists who predicted the financial crisis.

Speaking at the Sibos conference in Hong Kong on Monday, William White, the highly-respected former chief economist at the Bank for International Settlements, also warned that government actions to help the economy in the short run may be sowing the seeds for future crises.

“Are we going into a W[-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised,” he said, referring to the risks of a so-called double-dip recession or a protracted stagnation like Japan suffered in the 1990s.

“The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.”

The comments from Mr White, who ran the economic department at the central banks’ bank from 1995 to 2008, carry weight because he was one of the few senior figures to predict the financial crisis in the years before it struck.

Mr White repeatedly warned of dangerous imbalances in the global financial system as far back as 2003 and – breaking a great taboo in central banking circles at the time – he dared to challenge Alan Greenspan, then chairman of the Federal Reserve, over his policy of persistent cheap money.

On Monday Mr White questioned how sustainable the signs of life in the global economy would prove to be once governments and central banks started to withdraw their unprecedented stimulus measures. “The green shoots are certainly out there – the question is what kind of fertiliser is being used on them,” he said.

Worldwide, central banks have pumped thousands of billions of dollars of new money into the financial system over the past two years in an effort to prevent a depression.

Meanwhile, governments have gone to similar extremes, taking on vast sums of debt to prop up industries from banking to car making.

These measures may already be inflating a bubble in asset prices, from equities to commodities, he said, and there was a small risk that inflation would get out of control over the medium term if central banks miss-time their “exit strategies”.

Meanwhile, the underlying problems in the global economy, such as unsustainable trade imbalances between the US, Europe and Asia, had not been resolved, he said.

Also present at the Sibos conference was Joseph Yam, who is stepping down as chief executive of the Hong Kong Monetary Authority after 16 years. He told delegates of the myriad “challenges” facing those working for greater stability in the financial sector.

In a hard-hitting address, Mr Yam said that large banking profits and staff bonuses led to lower financial efficiency and contributed to the financial crisis.

Mr Yam is tipped to become an adviser to the People’s Bank of China, the country’s central bank, after he leaves his post next month.

He said there was a conflict between the private, short term interest of financial groups to maximise profits and the public interest of effective financial intermediation that provided support to the economy. “This conflict has not been talked about much, if at all, even in central banking forums,” he said.

 

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