Industrial production in America is effectively stalled, and regulators don't have the tools needed to deal with crisis in what has become a global financial system, according to information this week from the Federal Reserve Board.
Industries operated at 77.8 percent of capacity in April, the Fed reported, only one-tenth of a percentage point above a year ago, and 2.4 points below its long-run average. Over the past 40 years, the figure bottomed out at 66.9 percent in 2009, as the Great Recession got under way, and has risen only slowly since then.
Use of industry capacity topped out at 85.2 percent in 1989, the Fed reported.
Meanwhile, a senior Fed official told Congress that there is no system in place to coordinate efforts to deal with failing international banks.
"The recent financial crisis was unprecedented in its scope and severity," said Michael S. Gibson, director of the Fed's Division of Banking Supervision and Regulation. Moreover, "the crisis made clear that our regulatory framework ... was insufficient, and that governments everywhere had inadequate tools to manage the failure of a systemic financial firm."
There has been some progress, Gibson told a Senate subcommittee hearing on Tuesday (May 15), but there is still no workable system for several governments to work together in winding down failed financial firms with foreign subsidiaries and branches.
So with American industries operating well below capacity, there is no incentive to hire additional workers or to increase their ability to produce more. And as banks with global operations struggle to stay afloat, regulators don't have the ability to work across borders to help them either survive or to help them manage failure.
What does it all mean? Despite what political wishful thinkers may say about economic recovery, we're not there yet.
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