Monday, June 7, 2010

Where Did That V-Shaped Recovery Go?

Amidst all the scary news about the potential collapse of the Euro, China's bursting property bubble, Greece, Ireland, Italy, Hungary (huh? where did that come from?), environmental disasters in the Gulf, scary financial regulation, one must wonder whatever happened to our V-shaped recovery. I mean, all the smart guys were calling for one because, well, that's what always happens after a really steep economic downturn. And if our economists aren't capable of happily parroting history then, really, what are they good for? Because they're not very good at forecasting, that's for certain.

Take, for example, Friday's abysmal employment report. The US economy was supposed to add all sorts of jobs last month, hundreds of thousands of diverse and well-paying jobs, according to our economists' forecasts. Unfortunately, the best our economy could do was add a bunch of temporary census workers to the payrolls, with a scant 41,000 in additional private sector jobs joining the ranks of the folks collecting $15 an hour for helping our residents fill out a few forms. Yes, I know that employment is a lagging indicator. So they taught me in economics class many moons ago. But this time around, it seems to be lagging a wee bit too far behind the economic boost we were supposed to be getting from multiple trillions in fiscal and particularly monetary stimulus.

The problem remains the debt overhang. Consumers had too much debt. Asset values supporting that debt declined. Governments chose to solve the problem by assuming much of that debt and then attempting to stimulate demand by making money even easier to borrow. Sure it boosted the stock and bond markets for awhile, but now the markets are looking shaky as they face up to the reality that you can't cure a debt problem with more debt.

No comments: