Bernanke: More Stimulus
The New York Times today had two top-left front-page stories. The first “China Plans to Boost Growth as Economy Slows” outlines China’s use of export tax rebates as a response to slowing world demand. (Now, here. )
The second, which replaced the first later in the morning, is Bernanke’s call for stimulus package for our ailing economy, propping up the ailing consumer.
“If Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers,” Mr. Bernanke said. “Such actions might be particularly effective at promoting economic growth and job creation.” [Italics mine.]
Private sector employers shed 168,000 jobs in September and a total of 900,000 jobs since January. Real consumer spending, adjusted for inflation, declined during the summer and appears to have declined yet again in September.
The two stories could not be more appropriately juxtaposed. As I pointed out in an earlier piece, “Manufacturing, the Recovery, and What Lies Ahead,” China uses economic policy–such as export tax rebates, currency manipulation–to protect its export platform.
The U.S. response to weakening global conditions will be a large stimulus package to improve credit access. I would say that consumer spending is the real target.
As I noted, the slowing in spending and activity spans most major sectors. Real personal consumption expenditures for goods and services declined over the summer and apparently fell further in September. Although the weakness in household spending has been widespread, the drop-off in purchases of motor vehicles recently has been particularly sharp. Increased difficulty in obtaining auto loans appears to have contributed to the decline in auto sales
Bernanke’s comment that the U.S. trade was doing well, I found curious:
International trade provided considerable support for the U.S. economy over the first half of the year. Domestic output was buoyed by strong foreign demand for a wide range of U.S. exports, including agricultural products, capital goods, and industrial supplies. Although trade should continue to be a positive factor for the U.S. economy, its contribution to U.S. growth is likely to be less dramatic as global growth slows.
Bernanke nicely slide around the problem of trade. From July to August, the overall trade deficit is down $2.1 billion.
But a closer inspection shows that exports are down $ 3.4; imports are down $5.5 billion.
The decline in imports can be attributed to both the economy and to the price of oil. The larger decline in the exports can be attributed to economic conditions elsewhere. How one argues depends, I suppose, how one weights various factors and how one sees the causal chain. A weakening economy is driving down the price of oil.
However you look at it, exports are not growing.
For China, the problem is not a recession or worse, it is a matter of maintaining its export position. China understands trade; the U.S. understands the consumer.
Industrial production and construction slackened from July through September because of weak exports, a slumping real estate market and temporary restrictions imposed during the Olympics, the National Bureau of Statistics announced on Monday.
As one tool its economic arsenal, the State Council of China
announced that it would increase export tax rebates for everything from labor-intensive products like garments and textile to high-value products like mechanical and electrical products
Increased export tax rebates will make Chinese exports even more competitive in the United States and Europe, particularly as China has intervened heavily in currency markets to halt any further appreciation of China’s currency since mid-June. But with the United States heavily dependent on China to buy the Treasury bonds needed to finance a bailout of the American financial system, the Bush administration has stopped criticizing China’s trade and currency policies. [Italics mine]
For Bernanke, the primary problem is to maintain credit flow–and restore consumer confidence and spending.
As I said, the juxtaposition of the two articles is appropriate.