In 2009, when ABC’s “Modern Family” debuted one year after the collapse of Lehman Brothers, it predictably provided comic relief to millions of economically challenged Americans.
One show revolved around the quest for a $600 iPad, another around a family trip to the Four Seasons in Hawaii, a vacation that in real life would have cost the family at least $20,000.
This year, life on the show is different. Economic reality is creeping in, even for the comfortably upper-middle-class Dunphy family. Dad, happy-go-lucky Phil, a high-end real estate broker, is starting to lose his optimism, prompting his 11-year-old son Luke to ask, “What happens when you stop selling houses?”
The question is a good one, and exactly the reason why Fed Chairman Ben Bernanke came up with a second act in his quest to cure the US economy this week.
The process, called Quantitative Easing, involves the buying up of hundreds of billions of dollars in bonds issued by the Treasury to try and jump-start the economy. Former Reagan Budget Director David Stockman wrote on Minyanville.com calling it “high-grade monetary heroin.”
Suffice it to say, Bernanke has never been confused with a drug pusher, which brings us back to little Luke Dunphy. In every other recession since World War II, a rebound in the housing market has helped the Fed grease the wheels of a new expansion.
Mortgage rates come down, construction workers are hired, mortgage brokers abound and furniture and window coverings are sold. Bernanke’s predecessor, Alan Greenspan, used this to great advantage to get us out of the 2001 recession, but, as we all now painfully know, he went too far.
Bernanke now is saddled with a housing market where 25 percent of mortgages are underwater. The greatest tool a Fed Chairman has, the ability to stoke the housing market, is not available to banker Ben.
That’s why, in a highly unusual Washington Post editorial the day after his Fed announced its intention to buy $600 billion in long-term Treasuries, Bernanke barely mentioned housing.
What he did mention twice, and none too subtly, were stock prices — noting correctly that they rose in anticipation of the Fed’s easing action and that “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”
Last week the Dow was at its highest level since Lehman went bust.
So there you have it, the Fed’s playbook in black and white. Bernanke’s last best hope of keeping the economy from a double-dip recession is by what he calls the virtuous cycle of rising stock prices. One other piece of the puzzle, although Bernanke hopes no one will notice, is to let the dollar fall to boost stock prices and exports.
Will it work? Bernanke gloated that it already has. Indeed, stocks are up 15 percent since the end of August. Still, as economist David Rosenberg notes, Japan’s same try at this monetary experiment a decade ago resulted in only a temporary pop for equities.
Clearly, the Fed Chairman is running out of options. More will be needed to get tens of millions of Americans back to work and to get Phil Dunphy back to selling houses.
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