Challenge and Response
“We are far from being out of the woods”, admitted Federal Reserve Chairman Ben Bernanke in a speech in Dallas on Wednesday. Bloomberg’s report highlighted Bernanke saying that joblessness, home foreclosures and weak lending to small businesses pose challenges to the American economy in its efforts to recover from the worst recession since the 1930s.
‘Challenge’, in the term’s post-modern usage, is a polite way of saying that there is a major problem – because telling someone that they have a problem is a no-no nowadays, since it may harm their self-image or, God forbid, traumatize them. This gives rise to a political culture in which virtually all politicians are truth-challenged, because telling the truth is unacceptable and hence politically suicidal, and the mainstream media are reality-challenged, because they avoid reporting things that might make people feel bad about themselves. Bernanke — whose post makes him a quasi-politician, although formally he isn’t one – will therefore skirt the fact that the level of unemployment (currently 9.7%), or of underemployment (includes those ‘fully’ unemployed and the nine-plus million people who are in part-time jobs because they can’t find a full-time one and currently at 16.9%), is unlikely to fall much (if at all) for the next couple of years, even if the economy meets the Fed’s rosy forecasts. He will not discuss the next huge wave of foreclosures now forming (Bank of America is reportedly expecting to foreclose on several times its current rate of 7,500 homes per month, during the course of this year), let alone to admit that the Obama Administration’s efforts to forestall foreclosures have been ineffective and largely counter-productive.
Instead, he and others speak of the economy being ‘challenged’. If we revert to the older use of the term ‘challenge’, as being required to do something involving exceptional effort, courage, skill or whatever, then it is apparent that a challenge must be answered by a response. The American economy is a huge and multi-faceted entity, but insofar as it represents the combined decisions of all the households and firms comprising it, it is certainly capable of formulating a recognizable response to challenges facing it. Furthermore, in its collective wisdom, it is quite capable of penetrating the façade of Bernanke’s ‘challenges’ and seeing them for what they are – problems or outright threats, and certainly not opportunities, as the psychobbable would have us believe that challenges represent.
A key difference between responding to something perceived as a threat rather than an opportunity is the option of responding negatively. Not doing something, indeed not doing anything, may be exactly the right response to a threat – but it can never be the right response to an opportunity. It is abundantly clear that, in several key areas, the American economy is responding by doing nothing. Nowhere is this truer than in regard to one of Bernanke’s ‘challenges’ – that of weak lending. The banks’ response has been to lend less, while the public’s response has been to borrow less. On the very day Bernanke spoke, the Fed released data showing that consumer debt fell by over $11 billion in February, marking the thirteenth time in the last fourteen months that it has fallen. The annualised rate of decline was 5.5%, which is rapid in itself, but the entire phenomenon is unprecedented in the last several decades. It reflects the collective decision of American households to reduce their ‘leverage’ – the amount of debt they are carrying.
Consumer debt covers credit cards, car and student loans, etc. It does not cover mortgage debt. This latter is being reduced in a more brutal way, widely discussed in the blogosphere, but much less so in the mainstream media: borrowers are refusing to repay. Some can’t, but others simply won’t. As discussed in this column previously, the phenomenon of ‘jingle mail’ – mortgagees whose homes are ‘underwater’ (ie their market price is lees than the debt owed on them) are decamping, and simply mailing the keys back to the lending banks. In fact, it could well be argued that foreclosures are not the challenge but rather the response, or perhaps the enforced response of the lenders to the response of the borrowers.
Finally, there is joblessness, itself a major driving force behind the foreclosure plague. As noted, there is no relief in sight – because the American economy is now structured to protect and maintain corporate profit and executive pay, rather than jobs. Joblessness and semi-joblessness (involuntary part-time employment) are themselves a response to the crisis and a reflection of the primacy of ‘Wall Street’ over ‘Main Street’. It seems likely that Obama and his team understand this – Bernanke and co. certainly do – but even if they do, they seem unable and/or unwilling to do anything about it. It is perhaps the ultimate challenge facing policy-makers, but their response has been to duck.