A Minority Report Challenges US Economic Improvement

The President says he sees a faint light at the end of the tunnel. So does the Treasury Secretary and head of the Fed. They are joined by Lawrence Summers, who, not so long ago, was kicked out as president of Harvard for “conduct not becoming of an officer”

They are being challenged by the head of the Federal Reserve in San Francisco, an outpost so far from Washington that no one may care.

Janet Yellen has been a doomsayer since the beginning of the downturn and she has not wavered. Accoring to Reuters, she said, “The negative dynamics between the real and financial sides of the economy have created severe downside risks.” And added “While we’ve seen some tentative signs of improvement in the economic data very recently, it’s still impossible to know how deep the contraction will ultimately be.”

It may be that Yellen as taken a closer look at foreclosure rates, growing unemployment, and anemic manufacturing than her colleagues have. It may be that she understands that there cannot be a recovery if the jobless rate goes to 11% or 12% and housing prices fall another 20%. And, it may be that she sees bank earnings turning down again from the effects of mortgage problems, commercial real estate defaults, and deteriorating consumer credit.

And, it may be that she is right.

Douglas A. McIntyre