April 22, 2010
Newsweek’s Daniel Gross is back at it again. His cover story for Newsweek’s April 9 issue is another attempt to make a preemptive strike at writing history. You may remember his cover story for the magazine’s July 25 issue, entitled: “The Recession Is Over”. During the eight months since the publication of that article, the sober-minded National Bureau of Economic Research, or NBER — which is charged with making the determination that a recession has ended – has yet to make such a proclamation.
The most recent cover story by Daniel Gross, “The Comeback Country” has drawn plenty of criticism. (The magazine cover used the headline “America’s Back” to introduce the piece.) At The Huffington Post, Dan Dorfman discussed the article with Olivier Garret, the CEO of Casey Research, an economic and investment consulting firm. Garret described the Newsweek cover story as “fantasy journalism” and he shared a number of observations with Dan Dorfman:
“You know when a magazine like Newsweek touts a bullish economic recovery on its cover, just the opposite is likely to be the case,” he says. “It sees superficial signs of improvement, but it’s ignoring the big picture.”
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Meanwhile, Garret sees additional signs of economic anguish. Among them: More foreclosures and delinquencies of real estate properties will plague construction spending; banks haven’t yet cleaned up their balance sheets; private debt is no longer going down as it did in 2009; both short and long term rates should be headed higher, and many companies, he says, tell him they’re reluctant to invest and hire.
He also sees some major corporate bankruptcies, worries about the country’s ability to repay its debt, looks for rising cost of capital, which should further slow the economy, and expects a spreading sovereign debt crisis.
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Many economists are projecting GDP growth in the range of 3% to 4% in the first quarter and similar growth for the entire year. Much too optimistic, Garret tells me. His outlook (which would clobber the stock market if he’s right): up 0.4%-0.5% in the first quarter after revisions and between 0% and 1% for all of 2010.
“Fantasy economies only work in the mind, not in real life,” he says.
Given his bleak economic outlook, Garret expects a major market adjustment, say about a 10% to 20% decline in stock prices over the next six months. He figures it could be triggered by one event, such as as an extension of the sovereign debt crisis.
David Cottle of The Wall Street Journal had this reaction to the Newsweek article:
Therefore, when you see a cover such as Newsweek’s recent effort, yelling “America’s Back” in no uncertain terms, it’s quite tempting to stock up on bonds, cash, tinned goods and ammunition.
Now, in fairness to the author, Daniel Goss, he makes the good point that the U.S. economy is growing at a clip that has consistently surprised gloomy forecasters. It is. The turnaround we’ve seen since Lehman Brothers imploded has been remarkable, if not entirely satisfying, he says, and he is quite right. At the very least, U.S. growth is all-too-predictably leaving the European version in the dust. Goss is also pretty upfront about the corners of the U.S. economy that have so far failed to keep up: job creation and the housing market being the most obvious.
However, the problem with all these ‘back to normal’ pieces, and Goss’s is only one of many creeping out as the sky resolutely fails to fall in, is that the ‘normal’ they want to go back to was, in reality, anything but.
The financial sector remains unreformed, the global economy remains dangerously unbalanced. The perilous highways that brought us to 2007 have not been sealed off in favor of straighter, if slower, roads. Of course it would be great for us all if America were ‘back’ and so we must hope Newsweek’s cover doesn’t join the ranks of those which cruel history renders unintentionally hilarious .
But back where? That’s the real question.
Meanwhile, the Pew Research Center has turned to Americans themselves to find out just how “back” America really is. This report from April 20 didn’t seem to resonate so well with the rosy picture painted by Daniel Gross:
Americans are united in the belief that the economy is in bad shape (92% give it a negative rating), and for many the repercussions are hitting close to home. Fully 70% of Americans say they have faced one or more job or financial-related problems in the past year, up from 59% in February 2009. Jobs have become difficult to find in local communities for 85% of Americans. A majority now says that someone in their household has been without a job or looking for work (54%); just 39% said this in February 2009. Only a quarter reports receiving a pay raise or a better job in the past year (24%), while almost an equal number say they have been laid off or lost a job (21%).
As economic conditions continue to deteriorate for middle-class Americans, the first few months of 2009 are already looking like “the good old days”. The “comeback” isn’t looking too good.
Failed Financial Reform And Failed Justice
April 26, 2010
As the long-awaited financial reform legislation finally seems to be headed toward enactment, the groans of disappointment are loud and clear. My favorite reporter at The New York Times, Gretchen Morgenson, did a fine job of exposing the shortcomings destined for inclusion in this lame bill:
At Forbes, Robert Lenzner focused on the human failings responsible for the bad behavior of the big banks with his emphasis on the notion that “a fish stinks from the head”:
Derivatives expert Janet Tavakoli recently expressed her disgust over the disingenuousness of the current version of this legislation:
Ms. Tavakoli referred to the recent Huffington Post article by Dan Froomkin, which highlighted the criticism of the financial reform legislation provided by Professor William Black (the former prosecutor from the Savings and Loan crisis, whose execution was called for by Charles Keating). Froomkin embraced the logic of economist James Galbraith, who emphasized that rather than relying on the expertise of economists to shape financial reform, we should be looking to the assistance of criminologists. William Black reinforced this idea:
Back at The New York Times, Frank Rich provided us with a rare example of mainstream media outrage over the lack of interest in prosecuting the fraudsters responsible for the financial disaster that put eight million people out of work:
Unfortunately, the likelihood that any significant financial reform will be enacted as a result of the financial crisis is about the same as the likelihood that we will see anyone doing a “perp walk” for the fraudulent behavior that caused the meltdown. Don’t expect serious reform and don’t expect justice.