This week (Oct. 4) Fed Chairman, Ben Bernanke spoke before the Joint Economic Committee
of Congress. He discussed the economic outlook and directions.

“It is clear that overall; the recovery from the crisis has been much less robust than
we had hoped.”  Recent government economic data shows that the recession as having
been even deeper and the recovery weaker than previously estimated stated Bernanke.

The Fed chair identified several short term factors impacting the nation’s economy.

•  Political unrest in the Middle East & Africa
•  Strong growth in emerging markets  economies contributing to significant
   increase in the price of oil and other commodities
•  The earthquake in Japan and its impact on a major global supplier
•  Consumer behavior and cautious spending decisions as many families continue
   to struggle with high debt burdens or reduced access to credit
•  The most significant factor depressing consumer confidence has been the poor
   job market
•  State and local government continuing shedding of jobs

All of these points according to Bernanke will continue the likelihood of more
sluggish job growth.

Additionally he identified that the housing sector has been a significant driver of
recovery from most recession since World War II.  However he identified that with
the overlapping of distressed and foreclosed properties, tight credit conditions for
builders and potential homebuyers and the large numbers of “underwater mortgages”
have left the rate of new home construction at only about one-third of its average
level in recent decades.   Additionally, he identified that financial stresses persist.  Credit
remains tight for many households, small businesses and residential and commercial
builders, in part because of weaker balance sheets and income prospects have increased
the perceived credit risk of many potential borrowers.

Bernanke illustrated for Congress, that they face a complex situation of fiscal policy
in seeing tax and spending policies for now and the future.  He suggests the following
four objectives:

1.  Achieve long-run sustainability.  His concern is that  the federal budget is
    not on a sustainable path at present

2.  Avoid fiscal actions that could impede the ongoing economic recovery

3.  Fiscal policy should aim to provide long term growth and economic opportunity

4.  There is an evident need to improve the process for making long term budget
    decisions.

It sounds as though California should adopt these objectives as well.  Your comments
and perspectives are always appreciated.  Let us know what you think.

 

Tim Johnson
tjohnson@CaliforniaBusinessMinute.com