Compared to Bernanke Greenspan Had it Easy

Posted on January 30, 2008
Filed Under Economic Crisis

GDP at .6% annualized Rate, Inflation on the rise and Fed’s hands are tied.

The Commerce Department reported today that GDP rose at a seasonally adjusted .6% annual rate in the final quarter of 2007, citing the housing slump, a deceleration in consumer spending, inventory liquidation, and lower overseas sales as forces dragging on the economy. Economic growth was not only significantly slower than the previous quarter, but well below Wall Streetâ€™s already modest expectations. Of perhaps the greatest significance was the price index for PCE (personal consumption expenditures) which increased a staggering 3.9%, more than double the previous quarter.

What does this all mean? Despite the Fedâ€™s newly aggressive rate policy it appears we are barreling head on into a recession. The question is will it be the mild brand that weâ€™ve experienced over the past several cycles or a deeper more painful one, ala 1982?

Ben Bernanke certainly has his work cut out for him. The challenge facing him is far greater than anything Alan Greenspanâ€”who worked primarily in an environment devoid of inflationâ€”faced. Bernanke canâ€™t train his focus on stoking the flames of the economic engine with nary a worry about inflation as his predecessor could. He has to balance the plunging dollar, collapse of the housing industry, decelerating consumer demand, credit crunch, exploding inflation with an economy in dire need of a capital infusionâ€”how to manage one without submarining the other will be a very challenging task indeed.

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