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Federal Reserve Chairman Ben Bernanke said today (Sept. 15) that the recession is probably over. Stock market averages hit their 2009 highs. Actually, a day earlier, Janet Yellen, president of the San Francisco Fed, said the same thing: the recession has probably "run its course," she said. However, she warned that the recovery will be tepid, the financial system is not back to normal and is vulnerable to shocks, more credit losses lie ahead, and consumers may be in a new era of lower spending and more saving. Actually, Bernanke stated that the recovery would be weak, but that was hardly reported.

If the recession is over, what accounts for it? Liquidity. Oceans of it. David Rosenberg, former economist with Merrill Lynch, now works for Canada's Gluskin, Sheff. Unlike Bernanke and almost all so-called experts in the Fed and government, Rosenberg foresaw the present recession and financial industry collapse. (That's probably why he is no longer with Merrill Lynch, now part of Bank of America, but I have received no confirmation of that.) Rosenberg said today that "rampant fiscal stimulus" accounts for all of this year's growth and 80% of next year's. In the second quarter of this year, the total economy purportedly contracted by a 1% annual rate; Rosenberg said it would have plunged by 6% without that stimulus. The consensus is for 2 to 3% growth this quarter. Rosenberg says it would be zero without all that money pouring out of Washington.

Liquidity is also fueling stock markets all around the world. (Other governments are flooding their economies, too.) Rosenberg thinks the U.S. market is already overpriced. Most think the rally will continue, and I believe it has further to go, because it is pushed by liquidity, not economic fundamentals.

But here is a frightening thought: Wall Street WANTS a tepid recovery. It is delighted that the employment picture is still grim and consumers ailing, for two reasons: 1. A rapid recovery will lead to inflation, and 2. As long as Main Street is sick, the Fed will keep interest rates at these low rates (U.S. short rates are almost zero, and long rates are artificially low.) One reason for the current rally is the prospect that the recovery will be very fragile, and the government will continue spending and the Fed printing money, thus keeping stocks up. This could create ugly social unrest.

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Comments

CuddleFish Sept. 16, 2009 @ 8:55 a.m.

Bernanke says the recession is over.

The guy who appointed him is the same guy who said Mission accomplished.

The guy who re-appointed him is the same guy who promised "change."

Don't take any of that to the bank, cuz it ain't worth a plugged nickel.

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SurfPuppy619 Sept. 16, 2009 @ 1:34 p.m.

As Joe Wilson said to Obama recently in the Joint Session of Congress;

LIAR!

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Don Bauder Sept. 16, 2009 @ 1:35 p.m.

Response to post #1: Here's something else to ponder: the federal government wants the Federal Reserve to be a super-regulator of the banking system. But the Federal Reserve TOTALLY -- and I mean totally -- failed to see that banks were overleveraged, hiding liabilities offshore, making wild bets on derivatives and were essentially broke, as they remain. Yet these self-professed experts will be the master regulators of the banking system. You couldn't make a worse choice. Keep this in mind: yes, Wall Street drove us to the edge of the abyss through wild gambling. But regulators didn't see that it was happening -- either that, or looked the other way. Both are to blame. Best, Don Bauder

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Don Bauder Sept. 16, 2009 @ 1:41 p.m.

Response to post #2: Wilson's outburst was uncouth. But have you ever seen British legislators shout down another politician speaking to them? Now that is REAL participatory democracy. Best, Don Bauder

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SurfPuppy619 Sept. 16, 2009 @ 4:35 p.m.

Wilson's outburst was dispicable.

Yes, I have seen other countries legislatures go at it-some include fist fights (Russia, South Korea).

But I want to get make my feeling about the Feds clear-they are liars.

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Don Bauder Sept. 16, 2009 @ 5:30 p.m.

Response to post #5: Duke Cunningham slugged some other pol on the floor of the House, as I recall. Best, Don Bauder

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Fred Williams Sept. 17, 2009 @ 4:56 a.m.

I think we need a lot MORE rudeness in our political life.

This expectation of deference to elected politicians is profoundly undemocratic and anti-american in the extreme. They're not our lords and masters...they're supposed to be our representatives.

I called Jack McGrory a whore to his face in council chambers while he was standing next to John Moores. Stallings stalked over and berated me. The UT labeled me an "urban terrorist".

I laughed last and best when she was caught taking bribes from Moores and resigned in disgrace. They all should have been prosecuted. What they've done to San Diego is truly terrific.

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Don Bauder Sept. 17, 2009 @ 10:32 a.m.

Response to post #8: Moores never even got a wrist slap for all those gifts -- worth thousands of dollars -- he bestowed on Stallings. Moores got out of town with hundreds of millions, if not more. McGrory joined the Price clan and got very rich, using his inside knowledge. The U-T paid a private equity firm to take over the paper by selling it real estate at a steeply discounted price. Golding is essentially in hiding. The editorial writer who called you a terrorist is probably the same one who recently got fired. Take a bow, Fred. Best, Don Bauder

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SurfPuppy619 Sept. 18, 2009 @ 4 p.m.

I called Jack McGrory a whore to his face in council chambers while he was standing next to John Moores. Stallings stalked over and berated me. The UT labeled me an "urban terrorist".

See, I could not do this, at least not in person-because if anyone back talked me there would be a good chance I would pound them into the ground- and end then up in the Big House.

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Don Bauder Sept. 18, 2009 @ 7:45 p.m.

Response to post #9: Don't go the Big House, SurfPuppy. We need you here. Best, Don Bauder

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