On Friday, Nov. 5, 2010 Fed Chairman Ben Bernake visited Jacksonville University to participate in a question-and-answer session with students. According to a Nov. 9 article in the Daily Record, Bernake confidently stated, “We succeeded in avoiding the financial meltdown,” then continued to tackle questions related to inflation, commodities, insurance companies, the growth of China and the burst of the housing bubble in 2007. For many questions, Bernake provided students with lengthy responses, taking every opportunity he could to reassure students that the Fed was in a stable financial position and would remain so regardless of Republican-heavy election results from Nov. 2, as well as any impending results of the 2012 presidential election.
However, the elementary of Bernake’s articulate responses could be perceived as fundamentally flawed when considering the basic principles of finance. After all, no flowery answer is a substitute for the facts that Mr. and Mrs. Taxpayer are seeing on a day-in and day-out basis. When Americans are out of work, have hourly cutbacks, and are facing layoffs, their primary concern is not the price of gold as a commodity for investment or how well the Fed is regulating corporate fat cats like AIG. Indeed, the concern of the average American is finding another job in order to pay the bills and put food on the table.
Part of the Fed’s responsibility to the American people is to create a financially stable backbone, regulating the American economy based on current fiscal conditions. This is a difficult task to accomplish when unemployment rates remain steady at 9.2 percent on a national scale, according to information published by the Bureau of Labor and Statistics in November. Essentially, for Mr. Bernake, few everyday folks are buying what he’s selling.
With foreclosure rates continuing to climb, according to Fox News, after the housing bubble burst in 2007, and more jobs being lost, replaced or sent overseas, the future looks bleak. There are more houses on the market than exists a willing and able public to buy them. This decreases property value and lessens equity for homeowners who have weathered the financial storm so far. That hardly seems like avoidance of a financial meltdown as much as a stepping-stone toward the economy bottoming out, especially for a country that relies heavily on the real estate market.
Tack the unemployment rates and soaring foreclosure rates on to the fact that few investors in the global market will touch our current mortgage securities with a 30-ft. pole, and you have an economy that is going to see higher rates of inflation from gas pumps to grocery stores. When there are more homeowners, there is more home equity; when rates of home equity increase, there are more loans; when there are more loans, there is more money being pumped into the economy.
For the time being, there is no definitive plan in sight to navigate out of this financial conundrum. Mr. Bernake’s statement is somewhat correct inasmuch that we, as a public, have succeeded in avoiding a financial meltdown, but he should have added “so far,” because it is likely to get much worse before any signs of improvement are visible. Until the job market improves substantially, the economic conditions of the country will continue to worsen.
Fox News: Foreclosure Rates Surge, Biggest Jump in 5 Years
Bureau of Labor and Statistics: Metropolitan Area Employment and Unemployment Survey