Tuesday, June 16, 2009
There Was No Joy In Mudville 09
I'm just wondering what is going to replace the green shoots rhetoric? Is Geithner going to talk about sacrificing virgins on Thursday and declare he found manna in the desert?
Tomorrow I'll give you the gross details. Executive Summary: Yuck. Blah. I think CR's very nice housing post can't be improved upon, but one look at those graphs will cure irrational exuberance for the rest of the year. The bottom line is that residential construction is still slowing relatively quickly (completions crashing, and authorized but not yet started continuing to decline) and that just piles on top of the commercial construction slowdown. In no sense can this be described as a recovery or even a bottom.
All of which wouldn't matter so much if anything else looked like it were developing lively feet, but instead concrete overshoes seem to be the spring economic fashion. UK gilts had a good auction - money is coming back into government bonds in a sign that the latest round of irrational exuberance based on green shoots rhetoric is wearing awfully thin.
The financial crisis, or at least the raeson d'etre is still in place. The "toxic MBSs are, for the most part, still on the banks books. What has changed that it is no longer a crisis? IMHO, the cancellation of the "mark to market" rule for those assets has taken the heat off, exactly as Steve forbes and others had said from the get go. The banks are raising capital in the normal way, most are building new reserves, and the shorts have been stymied because they can no longer trumpet impending doom for banks. But the defaults continue, the inventory of unsold homes grows (more slowly now), and the Treasury plan to partner with hedge funds to buy the toxic MBSs is going nowhere. In other words, the raeson d'etre for the crisis remains. Yet many in thrall to Obama believe all is well.
In the meantime the oil speculators are at it once again with oil prices. When will the SEC or Treasury wake up to the fact that ICE must be regulated to insure commodity markets that cannot be manipulated? Economic activity is going to get worse if gasoline prices go above $3 nationwide. Obama's energy plans will help that happen while increasing utility costs to all homeowners. His stimulus plan stimulates very little and his health care reform promises new taxes and more government indebtedness.
I was concerned about the financial crisis last November, but believed that cancelling mark to market along with confidence inducing stimulus in shovel ready infrastructure, encouragement of energy exploration, smoothing the way for nuclear power, and tax cuts for businesses as well as real estate investors would take us out of the doldrums. We are getting none of that. I now believe we are headed down the road Japan traveled. We are all going to be a lot poorer ten years from now.
What I find interesting is that the policy response has been different but the trajectory is the same ... which suggests the limitations of policy (especially in the short run).
Because the US had such a massive productive capacity then, the impacts then were worse on the US than on many other countries.
I would suggest that China is the country now in the place that the US held then. A property bubble, an equities bubble, and a massive product overcapacity.
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