http://blogs.wsj.com/economics/2010/12/05/bernanke-on-cbss-60-minutes/
It's generally accepted that unemployment is a lagging indicator when recoveries come about following recessions. So, we've been waiting. And waiting.
Watching Ben Bernanke last night on "60 Minutes" it occurred to us that he's been waiting too. Clearly, Bernanke emphasized that there were two reasons for him to pull the trigger on the $600 billion bond-buying plan: unemployment and deflation. He chose not to use the word "deflation" but that's what he meant. And, unemployment was the first of his two reasons.
Here's where we had the "eureka" moment: unemployment may be a lagging indicator for "recoveries" but it may be a leading indicator for "double-dip" or extended recessions. It's going up and the U6 rate that we frequently refer to (current unemployment rate at 9.8% plus those who have given up) was referred to last night by Bernanke as currently at 17% with the potential to go as high as the levels seen during the Great Depression (he didn't name a number but that number was 25%).
Quite creatively, Bernanke came up with a reason why the U.S. might NOT have a double-dip recession: things are so bad in the housing sector that they can't get any worse! So, another decline in that area is highly unlikely. So, something is so bad that it can't contribute to things getting worse!
He also used one of our favorite numbers: 2.5%. It takes 2.5% GDP growth just to keep unemployment stable. And, that's "about" what we're getting. Any small drop and ...
Reading the excerpts from the interview would be a good idea and we recommend that. Even better, watch the interview wherever it's available. We've attached the "link" to the WSJ "excerpts" but, while we are subscribers, we've had problems before with linking to WSJ wisdom.
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