Sometimes we would love to know exactly what data Bernanke is looking at to give him such vivid hallucinations of optimism.  Take for example his prediction today, that the economy would “start growing again” by the end of 2009.   Through some alchemical process, Bernanke has managed to magically transform the 2nd derivative into a prediction of growth. This of course is akin to observing a skydiver’s parachute opening , and concluding that because his fall to Earth has begun to slow that he is on the verge of gaining altitude.

The AP reports his conclusions as follows:

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke told Congress Tuesday the economy should start growing again later this year, his most optimistic assessment of the country’s financial health since the recession struck with force last year.

But Bernanke warned that even after a recovery gets under way, economic activity is likely to be subpar. That means businesses will stay cautious about hiring, driving up the nation’s unemployment rate and causing “further sizable job losses” in the coming months, he told the Joint Economic Committee.

The recession, which started in December 2007, already has snatched a net total of 5.1 million jobs. The unemployment rate “could remain high for a time, even after economic growth resumes,” Bernanke said.

But while some economists believe unemployment could hit 10 percent by the end of this year, the Fed doesn’t share that view. The unemployment rate will probably climb “somewhere” in the 9 percent range, Bernanke said.

“The loss of jobs is one of the most distressing aspects of this whole episode,” he said.

Even with all the cautionary notes, the Fed chief offered a far less dour assessment of the economy.

“We continue to expect economic activity to bottom out, then to turn up later this year,” he told lawmakers. “We expect that the recovery will only gradually gain momentum.”

Recent data suggest the recession may be loosening its grip on the country, Bernanke said.

“The pace of contraction may be slowing,” he said. It was similar to an observation the Fed made last week in deciding not to take any additional steps to shore up the economy.

With an ephemeral assessment like, “The pace of contraction may be slowing”, it’s hard to imagine how he can in the same breath “expect economic activity to..turn up later this year”.  (One would normally assume the former to be a foregone conclusion before leaping to predict the latter).  So what do the numbers tell us?  The numbers tell us that wages are being slashed, unemployment is rising, business is contracting and real estate continues to decline. Commercial real-estate is an unmitigated disaster, and municipal bankruptcies can at this point, only be staved off by a Federal government whose tax receipts are being decimated by job losses and declines in personal and business income.

Where is the engine of this supposed recovery?  Bernanke doesn’t say. Instead he exercises faith over reason:  He simply believes that the economy will turn around, and provides no data to support this belief other than the second derivative — which is currently being manipulated by his own stimulus.

John Wasik at Bloomberg offers a more rational assessment:

We might be looking at a lost generation for U.S. home values.Far too many analysts are calling a bottom to the housing market after home prices in 20 metropolitan areas declined at a slower pace in February, according to the Standard & Poor’s/Case-Shiller Index.

Don’t be blinded by the glint of optimism in headlines about rising consumer confidence and slowing price declines. Demographic and market realities tell a more sobering story.

You won’t see a widespread housing rebound in an economy in which 600,000 jobs a month are lost and foreclosures ravage the most overleveraged areas. These are just the visible barriers to a recovery.

Mortgage lending has also been an unusually tightfisted process of late. Lenders are demanding a 20 percent deposit for home purchases, and want impeccable credit ratings. About 45 percent of U.S. banks surveyed by the Federal Reserve said they had “tightened their lending standards on prime mortgages.” I suspect that number is much higher.

Then there’s the reality that the market is glutted with homes. A record 19 million homes stood empty at the end of 2008.

What you can’t see in the most recent housing numbers is the least-visible driver of home prices today: demographics.

Baby Boomers

The baby-boomer generation, the largest in American history, will be buying fewer single-family homes.

The U.S. is experiencing a 40-year generational peak in consumer spending, one that will lead to “the first and last Depression of our lifetimes,” author Harry Dent predicts in his book “The Great Depression Ahead” (Free Press, 2008).

Yes John, we at The Analytic concur.