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Bernanke Punts

Gets ball back next week.

12:00 AM, Sep 1, 2012 • By IRWIN M. STELZER
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Draghi, meanwhile, skipped Jackson Hole because of “a heavy workload,” presumably to result in an announcement of “exceptional measures” at this coming Thursday’s meeting of the ECB governing council. He is hoping that German chancellor Angela Merkel, with Germany’s history of the devastating effects of inflation still very much in her mind and those of her voters, will have been refreshed by her trip to China, and more willing to consider letting the ECB buy sovereign bonds. After all, being received as the leader of Europe by her Chinese counterparts is a lot more fun than meeting with eurozone seekers-after-her-nation’s-money, and considerably more gratifying than persuading Greeks to keep their promises, the French to cede control over their fiscal policy, and contemplating the return to power of Italy’s Silvio Berlusconi. Draghi’s hope is that opposition from the Bundesbank will fade as the eurozone recession bites into Germany’s exports, and the nation’s banks press for a bit—only a bit—of inflation to shore up the value of their assets.

Bernanke has one major advantage over King and Draghi, his British and European colleagues. They are presiding over economies in recession, with no recoveries in sight. The Fed chairman has just received a report informing him that “Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand gradually in July and early August across most regions and sectors.” Mitt Romney and Barack Obama will have noticed that growth was slowing or slowest in the Philadelphia, Chicago and Richmond districts—containing the swing states of Pennsylvania, Illinois, and Virginia, respectively.

As has been true for several months, the recovery in the housing sector, although not as rapid as Bernanke would have it, is encouraging. The Fed survey reports, “Real estate [property] markets were generally said to be improving. On the residential side, all 12 Districts cited increases in home sales, home prices, or housing construction. Reports on commercial real estate were also generally positive.”

Home prices topped year-ago levels in June for the first time since a short-lived uptick in 2010. The well regarded S&P/Case-Shiller Home Price Index reports price increases of 1.2 percent over last June and 2.2 percent over the last quarter. Bernanke’s low mortgage rates get some credit—they are encouraging investors to buy thousands of foreclosed properties, fix them up, and convert them into rentals, contributing to a reduction in the inventory of unsold homes. Unfortunately, in the recent past, spring and summer cheer in the housing sector has more often than not turned to gloom as winter hit, so the Fed’s forecasters just do not know whether the flowers that bloom in the spring breathe promise of a merry winter.

Consumers certainly don’t think so. The various indices of consumer confidence differ on some points, but agree that consumers’ view of the outlook and their prospects have darkened considerably. “Consumers were more apprehensive about business and employment prospects,” said Lynn Franco, who oversees the Conference Board index. That bodes ill not only for home sales in the coming months, but for retailers who are stocking up for the Christmas season. So add builders and retailers to those who are hoping that Bernanke will soon come down on the side of still another round of quantitative easing. My guess is that Bernanke’s concern with the social costs of joblessness is pushing him to grant their wish.

Let me wish all of you a delightful Labor Day weekend. Forecasts are that 33 million of you will brave $4 gasoline to take to the road in this blessed interval between party conventions, and on your return can choose to watch the Democrats, the tightening pennant races (go Nats, go Yanks), and/or the opening of the NFL season

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