Thursday, February 12, 2009

Maybe we can??? Yes, we might...

Yes we CAN!' meets and fails a reality test?
Mr Obama as a candidate made 'Yes we can' his signature motto. What happened? Once elected this voice of hope has tuned to the rhetoric of despair. In an attempt to keep expectations down when Tim Geithner, Treaury Secretary, announced his new plan for banks and for finanicial sector help he warned that it would take time and that they would make mistakes and....

'Well, we might!'

That's a few notches lower than, 'Yes we can." Isn't it?

No divide and conquer
In the modern economy you can't do these two opposite things at once and get away with it. You can't 'be positive and urge people on while at the same lowering expectations for success so people won't get disappointed if the results aren't stellar. It's show time!

As always: the blame game
The President and his team are supposed to be positive forces for the economy. Yes, we understand that President Obama inherited a clunker of an economy from George W. Bush AND from the Democrat-controlled Congress. It's important to remember that, since the economy is not run by presidential fiat as we are now being reminded. Democrats have chaired the two key financial committees in the House and in the Senate. In the Senate, Dodd is a long time opponent of reform at Fannie Mae. He is also a huge recipient of funds from the financial lobby as was George W Bush (Barney Frank, who heads the House Financial Services Committee is also a recipient, to a lesser extent). There are all sorts of uncomfortable sound bites of Democrats saying things about the housing boom and about what they did to try to help lower the hurdles to get people into houses. One man's hurdle is another man's safeguard- in retrospect. Looking back, that does not play too well for those who want to blame the financial mess on Bush. He gets his share but be careful how you play this blame game. There is plenty for everyone.

It ain't me, babe
But we do know that whoever you blame, it's not Obama.

That's the fact Jack
That's a fact. And Barack knew the sad state of the economy when he ran for office. He ran as a more capable candidate on the economy than John McCain. So where is that guy? He knew that his job would be to turn this thing around and his reply was, "Yes we can." So where is that positive 'can do' attitude? It will be hard to have success without it.

As always, parties at loggerheads
Of course there is still a political battle raging over the form of the stimulus package and bank aid. I'd sure would like to have seen more support from Republicans but the battle lines are drawn. Democrats are of the opinion that they offered up a plan that was bipartisan in spirit. Republicans did not see it that way. So now the plan has been passed mostly with Democrat votes. Republicans had some impact on it. We'll see if it works. I am waiting for the scoring from the CBO to see what the timeline is on funds to be spent and the estimated impact on the deficit.

Some positive economic news?
Meanwhile the economy is not looking as grim. This is something I have felt for a while and it's not clear if I'm right or not, but what if we have not fallen into a black hole? Democrats have cast everything in the worst possible light to try and push through the stimulus plan.... What your mother is sick? See, that's why we need a stimulus plan...and so on. This has helped to color perceptions about how the economy is doing. The recession is in some ways severe, but not in all ways.

Yes, positive news!
In fact retail sales jumped by 1% in a surprising January result. Let's not try to extrapolate that trend. But it is good news for retailers since it suggests that they were able to make some real progress with inventory reduction. The SALE is the only way for them to do that. Firms can cut or halt orders for new merchandise, but inventories don't decline unless consumers are taking goods off the shelves. So the retail sales report - to me- more than being a signal of a strong consumer, is a sign that inventories are not going to continue to bloat. The rise in sales also helps the inventory-to-sales figure look better, a key gauge of inventory adequacy. In the report nondurable goods spending was quite lively but durable goods spending is still spotty.

Reason to be upbeat?
In a research piece I sent out earlier in the day, I pointed out that in the two previous long recessions it was about at this point in the cycle when retail sales stopped dropping. Remember that while unemployment is growing MOST people still have jobs and the population is still growing as well. Retail sales are 10% lower in real terms than their level at the threshold of recession. There has been a lot of adjustment, a lot of damage and consumers have postponed a lot of spending. It's a good time to recognize that the coming stimulus should tilt the odds of an improvement continuing. How much and how fast the economy improves depends on the profile and speed of the spending in the package.

Other positive signs, events?
Consumer confidence has also showed some signs of bottoming, in at least one the major monthly surveys. While the job losses have been severe, jobs are being cut faster than hours-worked. Moreover, the severe phase of job loss in recession is usually not a long one- especially if there are flashes of positive events like a consumer spending picking up and a stimulus package. Interestingly in the retail report auto sales rose; the weakness in m/m auto sales previously released had a large component of weak sales to corporate customers.

Comparing recessions: this one is weak and strong, but not yet over
When we look at this recession compared to others the things that really stand out are how weak imports are in this cycle and how strong productivity has been. Along with exports, that had been very strong, but now are falling sharply, we can identify the three mains reasons that GDP in this recession is the strongest after five quarters of recession compared to any previous post 1960 recession that lasted that long. That's right- the STRONGEST. While there is commentary about how bad this recession is, let's realize that most of this weakness is from labor market gauges. Job losses are severe and the rise of the unemployment rate from its cycle trough has been faster in this recession than in any other since 1960.

Wave the pom-poms
We can take the attitude that things are weak and troubled and say 'yes we might'. Or we can take the high road and be optimistic that our economy with a stimulus package, help from the treasury in spending its special funds and assistance from an active Fed mean 'Yes we can'. Let's see if the administration can bring itself to take a more positive view and try to encourage workers instead of depressing them.



kunnamkulam nostalgia said...

The world believes America created this whole mess, then Mr Obama has a responsibility to take care of my friend below:


I am an employed professional. I am in my mid fifties and virtually at the end of my working career. I come from a modest economic background and can be termed as belonging to the ‘middle-class’ in the Indian economic ladder. I am not likely to inherit any property or assets from my ancestors. I am the only wage earning member of my family and I have the responsibility of taking care of my wife and children and elderly parents. Over a working career spanning more than three decades, I have been careful with my spending as I am conscious that I have to save something to take care of me and my family when I stop earning.

When I had accumulated a modest capital and the income from that capital was enough to provide me sufficient funds to sustain my life style, I consciously decided to reduce my involvement in my professional work, fully aware that my earning from my profession also will be proportionately reduced.

I am not a speculator by nature; I am also a person who is basically content and cannot be termed greedy. All my capital was kept in a bank deposit with a standing instruction that the deposit be rolled over on a monthly basis. This has been my main investment over the last several decades. When I received my latest deposit renewal advice, I notice that the bank is paying an interest of 6 basis points on my deposit, whereas the bank charges 10 basis points to maintain my account. Thus in the foreseeable future, my capital will steadily come down.

My intention here is not to convey to you all the status of my personal finances. I want you to understand and appreciate that the current economic crisis is truly international in its dimensions and is seriously affecting the lives of individuals, families and communities who are far removed from the perpetrators of this mess. The greed of the American banking community, the recklessness of the American consumer and the laxity of the American regulatory authorities are at the root of the current problem. While they are paying some price for their mistakes now, they have also been the main beneficiaries of the extravagance earlier. On the other hand, a bank depositor who was in any case getting only a modest return on his investment, is now forced to bear the brunt – he will have to subsidise the losses of the banks by accepting negative interest rates or very low interest rates in the foreseeable future. I am sure I am not the only person subjected to this pain. There must be hundreds and thousands of other people like me, specially in the developing world, who are suffering the same fate.

Adding insult to injury, the respected Chairman of Fed, Mr.Bernanke, blames the frugal savers of the Asian economies for creating a liquidity bubble which led to the current crisis. Mr.Bernanke has to understand that unlike the developed economies of the west, the ordinary man in the developing Asian economies has no state support system to fall back on. There are no state pensions for the old and the publicly provided/subsidised housing, education and medical facilities are either non existent or of an unacceptable standard. Thus the average wage earner has no choice but to save whatever he can to take care of his needs when he stops earning.

My question is Where is the morality in all this?
a. A person who was careful with his expenditure and saved for the future is blamed for his frugality.
b. A reckless borrower indulging himself in an extravagant lifestyle on borrowed money is bailed out.
c. Bankers and speculators in select countries destroy the financial system to satisfy their excessive greed.
d. The indulgence of the borrowers and the greed of the bankers has to be paid for by the frugal savers worldwide, for the rest of their lives.

Do any of you have any answers for me?

T-Bone said...

To the above comment... Does Bernanke "blame" frugal savers, as in saying they are doing the wrong thing? Or is he just explaining sources of economic events. I really doubt he would have be making judgments of people in such a discussion.

To Roberts post regarding "Yes we can"... Your take on what that means is different that what take it as. I've always felt it was an answer to cynical people who've come to believe that government will always be the same, that all politicians are the same, that politics and bickering as usually will always be the case. People who have come to believe that big progress can't be made, that universal health care seems out of reach, that adoption of new energy will move forward at a snail's pace. People who have come to expect the stagnation or even backwards movement on issues.

But never was it suggesting to set unrealistic expectations. I think it was quite the opposite, as in telling the cynics that they are unrealistically cynical and pessimistic. It's "yes we can" with persistence, hard work, and rebounding from inevitable mistakes.

And how would you say things are positive economically while trying to take an action (enacting the stimulus) to improve the situation? Or why is it unrealistic to say that this stimulus won't suddenly result in a reversal of fortunes, but rather will take some time and even then it's not powerful enough to totally override the economic trends?

Some like to cast the motto "yes we can" as an unrealistic campaign promise that everything is gonna be great. I don't think that's what was meant. But that is how you seem to take it, and that is why you are suggesting the administration is reneging on the motto if it isn't unrealistically optimistic. I disagree.

Anonymous said...

Things are really bad atleast in the silicon valley. Venture financing has virtually dried up, start-ups are being asked to hunker down or close down and jobs are being shed at an alarming pace. %unemployment does not tell the whole truth. Most of my friends including myself dont claim unemployment (2K/month is nothing for the amount of work needed to get it). Get ready for shockwaves in the future.

Having said that, I am glad that we have a president and team that has a positive attitude, claims the truth that this mess is going to be difficult to clean and atleast tackling it. If we had the previous team which was clueless, misleading and totally incomeptent.. they would have followed the advice to state that everything was just awesome and acted as the cheerleader for the country while it burns.

Anonymous said...

BTW is there an indicator or a realtime graphic that shows the state of the current credit crunch and how to figure out how its easing?


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