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Tales From The Dark Side

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Regular readers of this blog know that I frequently discuss my skepticism about the true state of America’s economy.  It gets painful listening to the “usual cheerleaders” constantly tell us about the robust state of our economy.  The most recent Federal Reserve Beige Book serves as the Bible for these true believers.  One need only check in on a few of the websites listed on my blogroll (at the right side of this page) to find plenty of opinions which run contrary to the current dogma that America is on its way to a full economic recovery.

One of my favorite websites from this blogroll is Edward Harrison’s Credit Writedowns.  When I visited that site this evening, I was amazed at the number of contrarian commentaries posted there.  One piece, “The economy is nowhere near as robust as stocks would have you believe” dealt with one of my favorite subjects:  the Federal Reserve’s inflation of the stock market indices by way of quantitative easing.  Here is an interesting passage from Harrison’s essay:

My view is that the stock market has gotten way ahead of itself.  Easy money has caused people to pile into risk assets as risk seeks return in a zero-rate environment.  The real economy is nowhere near as robust as the increase in shares would have you believe. Moreover, even the falling earnings growth is telling you this.

Bottom line: The US economy is getting a sugar high from easy money, economic stimulus, and the typical cyclical aides to GDP that have promoted some modest releveraging.  But the underlying issues of excess household indebtedness, particularly as related to housing and increasingly student debt, will keep this recovery from being robust until more of the debts are written down or paid off.  That means the cyclical boost that comes from hiring to meet anticipated demand, construction spending, and increased capital spending isn’t going to happen at a good clip.  Meanwhile, people are really struggling.

The hope is we can keep this going for long enough so that the cyclical hiring trends to pick up before overindebted consumers get fatigued again.  Underneath things are very fragile. Any setback in the economy will be met with populist outrage – that you can bet on.

Another posting at Credit Writedowns was based on this remark by financier George Soros:  ”People don’t realize that the system has actually collapsed.”

Bloomberg News has been running a multi-installment series of articles by financial analyst Gary Shilling, which are focused on the question of whether the United States will avoid a recession in 2012.  In the third installment of the series, Shilling said this:

In the first two installments, I laid out the reasons why the U.S. economy, despite current strong consumer spending and the recent euphoria of investors over stocks, will weaken into a recession as the year progresses, led by renewed consumer retrenchment.

If my forecast pans out, the Federal Reserve and Congress may be compelled to take further action to bolster the economy.

*   *   *

Meanwhile, a number of economic indicators are pointing in the direction of a faltering economy.  The Economic Cycle Research Institute index remains in recession territory.  The ratio of coincident to lagging economic indicators, often a better leading indicator than the leading indicator index itself, is declining.  Electricity generation, though influenced by the warm winter, is falling rapidly.

One of the most popular blogs among those of us who refuse to drink the Kool-Aid being served by the “rose-colored glasses crowd” is Michael Panzner’s Financial Armageddon.  In a recent posting, Mr. Panzner underscored the fact that those of us who refuse to believe the “happy talk” are no longer in the minority:

In “Americans Agree: There Is No Recovery,” I highlighted a recent Washington PostABC News poll, noting that

no matter how you break it down — whether by party/ideology, household income, age, or any other category — the majority of Americans agree on one thing: there is no recovery.

But the fact that things haven’t returned to normal isn’t just a matter of (public) opinion. As the Globe and Mail’s Market Blog reveals in “These Are Bad Days for Garbage,” the volume of waste being created nowadays essentially means that, despite persistent talk (from Wall Street, among others) of a renaissance in consumer spending, people are continuing to consume less and recycle more than they used to.

Many people (especially commentators employed by the mainstream media) prefer to avoid “dwelling on negativity”, so they ignore unpleasant economic forecasts.  Others appear trapped in a new-age belief system, centered around such notions as the idea that you can actually cause the economy to go bad by simply perceiving it as bad.  Nevertheless, the rest of us have learned (sometimes the hard way) that effective use of one’s peripheral vision can be of great value in avoiding a “sucker punch”.  Keep your eyes open!


 

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