Actually, I think this will wind up being a multi-prong set of articles because the answer will probably evolve over time.
Over the last few weeks there have been calls of a bottom in the economy, or green shoots or signs of hope or whatever. The central message has been things are getting better -- or at least declining at a less severe rate. I have been extremely reluctant to make that call for several reasons. First, the data is at best preliminary and therefore subject to revision in either direction. Second, it's only a few months worth of data at best. In general, the best that can be said of any of the this new information is it is running against a compelling downward sloping trend.
That being said, in recent conversations I've had about the economy two points have come out -- two points that I think must be conclusively resolved before I am comfortable saying we're through the worst.
1.) The problems in the financial system have to be resolved. This will take some time. Under the Geitner plan a bank that gets a poor grade on the stress test will have 6 months to find new capital or get a government injection of cash. The underlying idea here is the bank will try and sell itself during that time if it is possible. However, it still leaves us with a six month period during which the situation will be unresolved.
2.) The auto situation must be resolved as well one way or the other. Frankly, I don't think the US economy could withstand an auto bankruptcy right now. There are so many industries that feed into the auto industry and provide ancillary services that a bankruptcy would threaten a fairly wide swath of the economy and send any recovery into a tailspin. We have to come out of this with a sense of "we're totally out of the woods" before we can say we're coming out of a bottom.
Invisible Wounds of War
8 minutes ago
2 comments:
I think the problem is more systemic than you posit, BD. Wages have been on a downward trend for years, with much of the shortfall made up with credit card borrowing and HELOCs. That seems to be pretty much tapped out.
Add to it, that boomers are beginning to retire, a trend which will only gather momentum. Retired people have to deal with fixed incomes and are much less likely to borrow for discretionary purchases.
So the foundation of this recovery appears to be rotten. I can't see a way out of it.
What about resolving the underlying issue of those billions and billions of dollars in credit default swaps and companion foreclosed loans? I thought I remembered you saying a while back that until that gets resolved, banks can't get healthy no matter how much cash the Fed pumps in. No?
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