While some took Bernanke's comments on the economy and state of the recession with a grain of salt, markets unsurprisingly jumped on the news during Tuesday trading. However, the optimism surrounding his words given at the Brookings Institution think tank was undoubtedly high-strung, considering the positive 1.1% retail sales gain in August. The Chairman's remarks in context read, "even though from a technical perspective the recession is very likely over at this point, it's going to still feel like a very week economy for some time." Assuredly those Bernanke was addressing knew that a "technical" recession requires two consecutive quarters of negative GDP growth, something which was never achieved during the economic downturn from 2001-2003. An economist would argue that such a statement may actually be cautionary in an environment where positive GDP growth in the U.S. during Q3 seems obvious.
More obtuse were moves by the American President to take further steps raising trade barriers with China, thus leading the pack of Western nations in their anti-competitive romp. The president announced a new tariff on Chinese made tires, which the U.S. International Trade Commission suggested start at 55% for three years, in order to stymie the leap in Chinese imports by 300% over the past four years. The plan represents thirteen tire companies and 15,000 workers which stand to lose their jobs given a complete takeover of the tire market by Chinese firms. A separate consulting firm however cites many U.S. based tire companies that have manufacturing facilities in China which will similarly be taxed under the plan. Such anti-competitive actions may save jobs in the short term, but will raise the average cost of goods sold in the united states and attempt to subsidize american industry towards competitiveness. Economists would agree that similar policy decisions, such as the tariff raising Smoot-Hawley Act of 1930, led the U.S. and world economies towards depression rather than recovery. Record low interest rates and a shifted liability from private to public sector balance sheets will not bring a roaring 2003-esque recovery, so long as unemployment, the hemorrhaging of our beloved "greenback", and anti-competitive policies face the consumer in the future.
First came subsidized employment through the stimulus and now tariffs where stimulus dollars just aren't enough. What comes when the dollars run out for a jobless consumer facing the inevitable inflation to be sown from two trillion dollars of government borrowing. What happens next?
