“America is beginning to consider a new stimulus program,” said Irish television last night.
It was a rainy day in the Emerald Isle yesterday. The wind was blowing. Rain was coming down. By 7pm, it was time for a pub and a drink. The Irish know what to do in the evening…
“Welcome to Ireland,” said the cab driver this morning. “Don’t you love this summer weather?’
It would have passed for a bad winter in Maryland. Cool. Wet. Disagreeable.
“What happened to that global warming?” asked a colleague. “It was supposed to make Ireland hot and dry.”
Meanwhile, back in the USA…people were wondering what happened to the stimulus program. It was supposed to stimulate.
Mr. Geithner says it is working. He says it’s “too soon” to begin thinking about another stimulus program. But every time we pick up a paper someone is voicing the need for more stimuli. And the things that really matter in the economy are going in the wrong direction: Jobs are going down. House prices are going down. Consumer prices are going down too.
This from Robert Reich’s blog:
“Recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the US economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.
“Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten homeowners is under water — owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.
“Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements. Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.
“My prediction, then? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.
“The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t ‘recover’ because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin…”
These comments sound sensible enough to us. In fact, colleague Rob Parenteau has been saying something quite similar in these pages. “Over the last three decades,” he says, “we’ve taken one of the greatest industrial nations in history… and traded it off piece by piece. In its place, we became the world’s #1 shopping nation.
“Even now, we’re facing an economy in which 70% of our economic output depends on consumer buying. No buyers, no recovery.
“And yet, unlike other recent minor busts and even major corrections, the lesson hundreds of millions of strapped Americans are learning all over again is that same lesson our forebearers learned after 1929.
“Namely, that the law of personal and financial responsibility is as irreversible as the law of gravity. And it’s the egg that no bureaucrat – no matter how popular – and no multi-billion dollar bailout – no matter how large – can unscramble.
“In short, the hearts and minds of the American consumer have been thrown into reverse. And it’s this total psychological ‘snap’ that will make a back-to-baseline conventional recovery impossible any time soon.”
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