The end of May rolls around amid great anxiety. Even the oil spill in the Gulf of Mexico gives a dark back beat, symbolic of our complex challenges, institutional weaknesses, unrealistic appetites and how much we don’t know. The markets are trying to make a wobbly recovery this morning, but even a smidgen of bad news could send the indices south again.
The most ominous news last week didn’t concern the euro. Rather, it was the consumer price index, rising in April at the lowest rate since 1966. Alas, we don’t have a 1960s economy, with robust industry, worldwide economic dominance and a middle class with ever rising income and security. The CPI seemed to indicate that Fed Chairman Ben Bernanke’s sum of all fears remains: deflation. (Oil prices toppled, a real leading indicator of recovery or slowdown).
That, combined with the European situation and the ongoing unemployment crisis at home, would put us the closest to a double-dip that we’ve been since this very weak recovery began. It’s not weak for everyone, to be sure. The bailed-out banks are giving record bonuses, as well as increased perks and benefits.
Today’s house sales numbers are hardly cause for celebration. The increase was heavily dependent on the federal first-time house-buyer credit from the federal government. The best we can hope for is that this is bottom. A huge inventory of unsold houses remains, a shadow inventory has yet to come on the market, many mortgages will reset this year and millions of house-owners are under water. The bubble is not coming back.
It could be argued that much of the market’s rise was a smaller-scale bubble, driven by zero-interest hot money, cheap equities, the huge infusion of bailout money and the anticipation of recovery. Now that’s largely played out and many stocks are over-priced. As markets retreat, world money is pouring into Treasuries, giving the lie that the American deficit is such a crisis that we must, say, eliminate Social Security, etc., and the dollar rises. The downside: American exporters are hurt.
Europe isn’t as badly wounded as pessimists fear but neither is it through this crisis. The euro was always a gamble: a unified monetary system without a unified political one. Much commentary is being devoted to blaming Europe’s social safety net, saying Europeans don’t work hard enough, the usual cliches. By extension, America must be prepared to “tighten its belt” even further. Less attention is being paid to the way big banks and shadow banking system has seeded, manipulated and perhaps worsened the crisis in a global system that is dangerously too interconnected.
Today’s Econ Haiku:
Is on the way in China
But at China’s pace