Top of the News: In a speech today, Fed Chairman Ben Bernanke said he was “fundamentally optimistic” about the economy’s prospects in the long run. Me, too. But, as John Maynard Keynes said, “in the long run, we’re all dead.”
The rest of Keynes’ quote is less well known: “Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” Indeed. Bernanke cites data that might indicate the viciousness of the downturn is abating. But even a flat ocean won’t do much to rebuild the vast numbers of jobs and huge amount of wealth that has been destroyed.
The economy in recent decades has been predicated on ever increasing, and probably unsustainable, levels of “growth,” especially in short-term profits. Productivity soared but that didn’t translate into rising wages, as had been the case from the 1940s to the 1980s. Leverage skyrocketed in the private sector, especially for the banks with their “innovations.” But research and infrastructure funding — for real productive activities — stagnated or fell backward. So Wall Street and Bernanke can take some comfort from better bank earnings, such as Wells Fargo’s — but are they real?
As Morningstar analyst Paul Larson said on Huffington Post, “Banks are doing everything and anything in their power right now to get their earnings as high as possible.” Thus to get the regulators — and restrictions on executive pay — off their backs, and presumably restart the old gambles. Yet their underlying problems of leverage, bad bets and dependence on the shadow banking system remain. The old model is dead. The only ones who don’t seem to know it are the highly paid CEOs, their lobbyists, and Larry Summers.
President Obama spoke at Georgetown University this morning, also seeing “glimmers of hope,” although also sounding realistic, saying “by no means are we out of the woods just yet.” As if to underscore those woods, retail sales for March took another steep tumble. This represents more of the real economy than the financial sector, even though the latter is now larger than manufacturing in the American economic makeup. And even here, if recovery in consumer spending means more credit-card debt — it’s not a sustainable recovery. It took us years to dig this hole. I’d be optimistic if we were just not digging any deeper.
The Back Story: Privatize profits, socialize losses. The anger of average people over the focus of the feds on pouring hundreds of billions of their dollars into helping the very Wall Street CEOs who created the disaster was neatly capsulized in an email from a reader in Shoreline. “The reward for failure from our own pockets into the hands of the very companies that are, in turn, eating us alive is extremely difficult for all to swallow.”
She’s not impressed by initiatives to lower mortgage rates and spur refinancings. Like others I’ve heard from, she shopped around banks for refinancing a 30-year mortgage, but found that even with a lower rate, the pile of fees attached to the re-fi made the deal no better than the current expenses, or even worse, plus the added hassle of paperwork. Her suggestion: “I am asking the federal government to require all banks to identify its current good-standing mortgage holders and automatically reduce their interest rates on their home loans to 4 percent across the board. No closing costs. No paper work. No hassles. Effective immediately.”
Today’s Econ Haiku:
Tax day tea party
Brews anger against those rates
Bush’s, not Barack’s