So what is happening with the economy? Employment numbers go up and Greece gets bailed out. Presto. The markets rise and the clouds of bad times dissipate. Or do they?
Yes, economic recovery has been in the news all week. The president has modestly credited his own policies as the cause. A media intent on his reelection and with no real grasp of economic data has embraced the Recovery February storyline. And yes, the S&P is back close to its level of April a year ago, though that is still 13% below its decade peak in October 2007. But can you take the recovery talking and “Happy Days Are Here Again” singing to the bank?
Buyer beware. Here are some of the unsettling facts.
Jobs? Yes, up. The raw number of jobs has been rising despite occasional blips for most of the last two years. But the rise has not kept pace with the growth in the workforce, which means mainly the pace at which young people are coming of age. The labor force participation rate – the percent of the adult population with jobs — is down to around 63 percent, considerably below the 66 percent of early 2008. And the trend is down, not up.
Europe rescued? Yes, Greece is being bailed out, again. Some time ago Greece’s creditors accepted a 21 percent write down of their loans to Athens. Now they are talking of writing down as much as 70 percent on conditions of future performance that look laughably unachievable. This is default in slow motion. The idea is to allow banks holding Greece’s bonds time to adjust — write-down by write-down — and to give the European Central Bank time to provide replacement liquidity. Since July, according to Alvaro Vargas Llosa in Forbes, the ECB has increased its balance (meaning printed money) 38 percent. In the end the Euro may or may not be saved. But to European authorities the true test of policy now, it appears, is whether the European banks can be saved. And until they are secure again, which may take years, chances are Europe cannot grow.
Meanwhile, back in the U.S., according to George Mason University bankruptcy law expert Todd Zywicki, also in Forbes, the recent robo-signing settlement between banks and a consortium of state attorneys general and the Obama administration is a sign that the government remains in the business of looting American banks, at least that how I read Zywicki. And if he is right, how can domestic lending recover (and with it strong economic growth) while this willy-nilly rewriting of contracts (which is what a loan is) and using of banks as surrogate funders of government social policies continues?
With all these signs that the economy is burning, the administration keeps playing its Keynesian fiddle and putting politics (as in the Keystone decision) ahead of economics. Press releases don’t bring back an economy. That takes reducing the government’s dead-weight burden on the economy, which means cutting unproductive spending, stifling tax rates and paralyzing regulation – a lesson this administration has yet to learn.
So, Recovery February? Yes, if you accept a permanent downsizing of the American dream. I am not one who believes we are in another Great Depression. But it is all more than a little depressing.