by Michael Blim
Ben Bernanke met the press this past week with no good news to report. Rather he admitted that “we don’t have a precise read on why this slower pace of growth is persisting. Some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, may be stronger and more persistent than we thought.”
And how. The US economic recovery now almost two years old is the weakest of economic bounce backs over the past one hundred years, according to Richard Milne in the June 25 Financial Times, and economic policy elites like Bernanke are mightily perplexed. Output growth continues to falter, and unemployment will remain as high as seven to seven and a half percent through 2013. Instead of figuring out what to do next, Bernanke et.al. find themselves spending most of their time defending what they have already done as saving America and the world from something much worse.
As the economy slows once more, and the housing market worsens, the chances of really bad knock-on effects increase. You may recall that the collapse of the value of mortgage-backed securities (MBSs) triggered the panic that sent the world economy reeling. Well, those bad securities, some half a trillion dollars worth, are still sloshing around in Wall Street basements, still able to help take us under should the economy start to tank once more.

