Obamanomics 101: The Bad News Is,
the Good News Isn’t Really That Good
posted at 1:00 pm on July 27, 2009 by The Other McCain
It’s bad enough that the unemployment rate has doubled in only a year and a half and one out of six construction workers is out of work. What truly troubles President Obama’s economic advisers is that, even adjusting for the recession, the contraction in employment seems way too high. . . .
The Federal Reserve now expects unemployment to surpass 10 percent . . . The economy has shed 6.5 million jobs . . . Economists fear that even when the economy turns around, the job market will be stagnant.
Even while the media keeps pushing “recovery” talk, the further ahead you look, the scarier it gets:
The global economy may fall back into a recession by late 2010 or 2011 because of rising government debt, higher oil prices and a lack of job growth, said Nouriel Roubini, the New York University economist who predicted the credit crisis. A “perfect storm” of fiscal deficits, rising bond yields, “soaring” oil prices, weak profits and a stagnant labor market could “blow the recovering world economy back into a double-dip recession,” he wrote . . .
Did anybody notice that the FDIC took over six banks Friday, bringing the year-to-date total to 64 bank failures? And there’s more trouble on the horizon for the banking industry:
Regional banks can no longer ignore the elephant in the room — their exposure to the commercial real estate bust . . . analysts expect credit problems over the next year to center on commercial real estate — mortgages on office and apartment buildings and shopping malls, as well as construction, development and industrial loans. U.S. banks hold some $1.8 trillion worth of commercial loans, according to Federal Reserve data . . . With financing markets locked up and the economy still mired in recession — unemployment is at a 26-year high while capacity utilization, a key measure of industrial production, recently hit a record low — observers fear a wave of loans will go bad in coming quarters . . .
People who read headline saying the worst is over need to read the fine print in those stories. If the headline says “June New Home Sales Up,” for example, be sure to pay attention to the bad news about the good news:
However, sales are still 28% below the levels of a year ago, when new homes sold in June at an annualized rate of 530,000. Four years ago, during the height of the housing boom, the sales rate for June was 1,374,000, nearly three-and-a-half times higher than last month. . . .
Look at what analysts told the Wall Street Journal:
“[T]he dismal state of the U.S. labor market will continue to cast a long shadow over the prospects for a meaningful recovery in the sector in the near term . . .”
“[T]he report showed a sharp 6% sequential decline in June suggesting that much of the sales activity was concentrated at the lower end of the market . . .”
“The news sounds better than it looks . . . despite the jump in sales in June, new home sales remain at very low levels, and the not seasonally adjusted data show a total of 36,000 homes sold nationwide in June, the lowest sales total for June since 1982.”
Hey, how good can the economy be, if Tim Geithner can’t sell his house? The two-week stock-market surge — which saw the Dow Jones Industrial Average zoom up about 800 points before the rally ended Friday — was fueled in large measure by a constant media drumbeat of “recovery is near” messages. Allen Abelson of Barron’s is getting tired of the happy-talk:
The melancholy fact is that our ink, online and TV colleagues can be too easily snookered by Washington, Wall Street and Corporate America, all of whom are desperately peddling recovery rather than reality.
One of the things that make it hard for people to figure out which way the economy is heading is that analysts shy away from outright predictions:
Like being a weatherman who never gets around to saying firmly, “It’s gonna rain tomorrow,” you’re always 100% accurate.
Me? I boldly say, “Bring your umbrella.” As I first explained in December at The American Spectator, the most important thing to understand about Obamanomics is It Won’t Work. The neo-Keynesian deficit-spending “stimulus” approach, which began with Henry Paulson and the Bush administration, is the exact opposite of what the economy needs, because The Fundamentals Still Suck.
Obamanomics flunks in terms of the basics. There is nothing in economic history to support the belief that the agenda currently being pursued in Washington will lead to real recovery. Jimmy Carter-style “stagflation” is a much more likely result.