February 24, 2010
The Teetering Globe
We've been watching, almost since the start of the recession, as economists have insisted that recovery was just on the horizon. Why? Well, because it always is. If they could tell us what the engine would be, they'd be investors, not economists, and hey, nobody can predict the future.
Now the darker view has expanded beyond us Internet cranks:
Bass could be wrong on Japan. The island nation (and the world's second-largest economy) has defied skeptics for so long that experienced traders call betting against it "the widowmaker." But he may be right on the bigger picture. If 2008 was the year of the subprime meltdown, 2010, he thinks, will be the year entire nations start going broke.The world has issued so much debt in the past two years fighting the Great Recession that paying it all back is going to be hell--for Americans, along with everybody else. Taxes will have to rise around the globe, hobbling job growth and economic recovery. Traders like Bass could make a lot of money betting against sovereign debt the way they shorted subprime loans at the peak of the housing bubble.
National governments will issue an estimated $4.5 trillion in debt this year, almost triple the average for mature economies over the preceding five years. The U.S. has allowed the total federal debt (including debt held by government agencies, like the Social Security fund) to balloon by 50% since 2006 to $12.3 trillion. The pain of repayment is not yet being felt, because interest rates are so low--close to 0% on short-term Treasury bills. Someday those rates are going to rise. Then the taxpayer will have the devil to pay.
So what's coming our way, in 2010 — recovery or global bust? It's a frightening predicament, especially with Tin-Ear Barack still pushing federal takeover of healthcare and promoting government as the nation's job engine. My federal tax return finally enabled me to catch up on bills that were months overdue. If things hover as they are, my family will weather the storm for a while longer. If they don't improve, who knows. The boss has said layoffs are coming on Friday, and the town, state, and country in which I live are run by people without the economic knowledge or political will to take necessary steps.
WASHINGTON (AP) -- The economic stimulus law added between 1 million to 2.1 million workers to employment rolls by the end of last year, a new report released Tuesday by congressional economists said.
The nonpartisan Congressional Budget Office study also said the $862 billion stimulus added between 1.5 to 3.5 percentage points to the growth of the economy in 2009. The controversial stimulus law combined tax breaks for individuals and businesses with lots of government spending.
The report reflects agreement among economists that the measure boosted the economy. But the wide range of estimates means it won't resolve the debate over how effective the stimulus has been.
The White House says the stimulus bill has created 2 million jobs and will add another 1.5 million this year as economic recovery continues to take hold.
CBO projects that the stimulus measure to have a greater impact this year, boosting gross domestic product by 1.4 to 4 percentage points and lowering the unemployment rate by 0.7 to 1.8 percentage points.
The report said the most efficient parts of the stimulus include infrastructure projects such as road- and bridge-building and more generous unemployment benefits. On the other hand, the popular first-time homebuyer tax credit isn't a very efficient use of stimulus dollars, the report said.
The economy has shed 8.4 million jobs since the start of the recession in December of 2007, though job losses have slowed in the past couple of months.
The stimulus measure has earned mixed grades from a public weary of a bad economy and increasingly concerned about out-of-control budget deficits. Democrats are seeking to renew several parts of the stimulus, however, including aid for state governments and extended unemployment insurance benefits for the long-term jobless.
The White House acknowledges the long-term debt burden of the stimulus measure will place a slight drag on the economy in future years.
From the Associated Press on Feb.23,2010
New York Times
Oyster sales have been strong this month.
Posted by: Phil at February 24, 2010 7:03 AMThe first thing my first economics professor told us on the first day of class was that economists are good at explaining what has been, and have been extremely poor at predicting what will be. That has certainly remained true to this day. Policy recommendations can still be valuable of course, and people can draw their own conclusions, but it is more appropriate to consider them a special kind of historian. Economists cannot predict the future, well... that is unless they're Peter Schiff or Ron Paul...
http://www.lewrockwell.com/paul/paul128.html
All of this just confirms what Austrian economists have been saying all along, that the economy is too large and too complex to regulate from the top down. There will always be unintended consequences to meddling from the federal government, such as the housing meltdown in 2008 that resulted from extreme and direct interventionism in that market. Only billions of individual actors can possibly achieve the kind of efficiency and accurate day to day barometric reading that is necessary to keep the economy healthy and accurate. What does the government know about whether you are in a position to buy a house or not? Only you can know such a thing.
Posted by: Dan at February 24, 2010 8:33 AMI happened to catch Hannity on Fox last night -- the entire show was devoted to a documentary called "Generation Zero."
The glimpses provided from the documentary (to me) showed that it would be well worth finding a venue in which to see it in its entirety -- it provides some intriguing explanations for how we got into this mess.
Of course, Obama's (and Geroge W's) Keynsian response to the "financial meltdown" won't work any better than did FDR's -- in other words it will prolong the pain rather than "stimulate" a recovery -- just as the Austrian economists have maintained.
WWII ended the Great Depression -- don't be surprised to see the politicians let us wander into another war in order to divert the masses attention. Iran anyone?
Posted by: Ragin' Rhode Islander at February 24, 2010 10:44 AM