The popular opinion is that the Fed will opt for further stimulus if things don't go as planned. The plan is to reduce unemployment, increase growth. the promise is that if that doesn't happen as planned, the Fed will step in to help.
Mr. Bernanke is right in saying that intervention has proved to be a valuable tool in controlling the impact of the recession of 2008, therefore the Fed will be open to using it again - should another recession occur.
The market reacted positively to this signal, interpreting it to mean that further stimulus may be used. I disagree.
First of all, we are not in the midst of a recession. Granted that the growth indicators are below normal, but the important thing is that WE DO HAVE GROWTH!
If you were recovering from a sickness that almost took your life, don't you think that it would take you a while before you were able to do a 5Km run like you used to before you were struck down?
Well, our world was struck down by such a disease; the virus spread an engulfed all it's organs (countries). The medicine (stimulus) worked, and the fever came under control in 2009. But we could not get the virus out of our system. The virus is now contained in one organ (Europe), the rest of the body is starting to recover, but is far from well. It is my expectation that vital signs will start returning to "normal" levels by the beginning of next year. Let's start with a gentle 2Km walk in 2013, and in 2014 we can start doing a walk-run routine and increase our distance. But the weakness this sickness has created runs deep and we should not expect to do the 5Km run until 2015.
One of the illusions most people have is that we are only contending with the one virus, whereas in my opinion, we already had a slow spreading virus (debt) in our blood. Although this virus was slowly eating away at our organs, there were no alarming symptoms so we were able to ignore it. When we got hit with the Recession virus the Debt virus increased the crisis. We are now done with the first one, but the second one is still around and it is preventing our recovery. But patience and attention to what is needed will help us recover. Each individual living on the planet today, needs to make a commitment not to increase their debt burden but to start working on reducing it. If we all do a little bit, it will add up to a lot - after all that's how the seas and the oceans were made by a bunch of inconsequential drops. If we don't we will indeed fall into another recession and it won't be long before it hits us. We have a choice. By the way, that's what Dec 21st, End of the World is all about. We can either work together and come out stronger or we can all perish together - what ever fate we chose we will all be travelling in the same boat in the same storm, and there won't be anywhere for any of us to hide.
Under the present circumstances further stimulus would be absolutely the worst thing for the long term health of the economy. It would be like a spoon full of sugar, and then we will crash for sure