Lifting Clouds

The Fall is usually a time of bleaker economic news than the rest of the year. Not so much this year:

Aug. 27 (Bloomberg) -- Fewer Americans filed claims for jobless benefits last week, another sign the economy is pulling out of the worst recession since the 1930s.

Applications fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, Labor Department data showed today in Washington. The total number of people collecting unemployment insurance fell to the lowest level since April.

Companies’ staff cuts are easing as government stimulus measures help stabilize the housing and manufacturing industries. At the same time, a rebound in hiring will take longer to occur, restraining the consumer spending that accounts for about 70 percent of the economy.

[...]A separate report from the Commerce Department showed the U.S. economy contracted less than forecast in the second quarter as a jump in government spending and smaller cutbacks by consumers helped mitigate a record plunge in inventories.

I won't bore you with an analysis of that last paragraph. Suffice it to say that companies are running leaner operations than they had been, and the economy is starting to drift back towards growth.

The wildly successful Cash For Clunkers program, ended Monday but launched July 24, wasn't even a factor in the 2nd quarter, which means that the 3rd quarter will probably show a further slowing in the rate of recession, if not a turnaround.

New homes sales rose ten percent in July, which is an amazing leap when you factor in the thought that mortgage lending was nearly non-existent until the second TARP bailout enacted under President Obama. Still, sales are off 13.4% from July 2008. July 2009 was the fourth straight month to show a gain in new home sales.

That's not to say housing is out of the woods yet. Lending to builders is still tighter than a maiden aunt's ass which means new home construction, a vital component of the American economy, is moribund. What you're seeing is the sale of previously built homes that sat empty.

Still, things could be much worse and the economy could be in a lot worse shape than it is. Right now, things are still teetering on the precipice like a Keystone Kops clown car. We could still tumble.

But at least I have faith that this driver is not going to put the car back into gear and drive us off the cliff like the last President nearly did!

Recovery

Paul Krugman won his Nobel honestly, to say the least. Today, he puts forth the following proposition:

A few months ago a headline in the satirical newspaper The Onion, on point as always, offered one possible answer: “Recession-Plagued Nation Demands New Bubble to Invest In.” Something new could come along to fuel private demand, perhaps by generating a boom in business investment.

But this boom would have to be enormous, raising business investment to a historically unprecedented percentage of G.D.P., to fill the hole left by the consumer and housing pullback. While that could happen, it doesn’t seem like something to count on.

A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending.

I agree. I think the largest concern for the American economy over the past decade or so has been the transnationalization of our debt.

Think about it: the Chinese, British, and Saudis (as well as other nations swimming in new-found cash) basically have funded not only our national debt, but in turn, our personal indebtedness, including our mortgages.

Our foreign policy has followed suit, you might have noticed. The Iraq invasion was as much a pretext for getting money from the House of Saud as it was for "protecting America from terrorism".

Too, once these foreign governments found themselves swimming in American paper, the more risk-tolerant governments began buying up American private instruments: corporate bonds, securitized mortgages, credit and auto loans, things like that. Better return
for only slightly higher risk.

I'd got so far as to make the observation that the change in bankruptucy laws that made it nearly impossible for Americans to walk away from debt was less about the banking lobby and more about not knifing our allies in the back.

Once this house of cards began to topple (and this really is only the beginning), much effort was put not into prevention, as in financing Americans directly, but in staving off the collapse of the mediators: the banks and brokerages.

You see, we're stuck paying these bastards off for stuffing our mailboxes full of solicitations, egged on by a president who's idea of sacrifice is to take our credit cards out and spend, spend, spend! Financing us just brings the problems the institutions have to a head.

What we as a nation need to do, therefore, is to repatriate our owings, if we are to reclaim a recovery of any length and note. You'll notice the last time we had a truly healthy recovery, we were paying down our budget deficits and even making inroads into what was now-laughably called a crisis national debt of $3.8 trillion (it is now over $10 trillion and climbing fast).

The trouble, of course, is that other nations may not take kindly to this domestication of resources and money. China, for example, lives by our imports of their goods. It would be a bit irritating if we suddenly opened factories all across America, and paid people a living wage to make goods that China can produce far cheaper than we can.

Which brings me to some linkage, something that Barack Obama had already proposed on the campaign trail for other purposes, but which can make us a manufacturing powerhouse again without really upsetting our trade with China among others.

To put it in a phrase: green energy.

Right now, we have a nascent renewable resources manufacturing industry. We have the innovative American mind, the entreprenurial spirit with which to create, and the structure to manage and distribute this kind of knowledge around the nation.

More important, we have the idle capacities in terms of both plants and labor. There's not much reason not to insitute this program of weaning ourselves off fossil fuels, weaning ourselves off the notion of "brand, spanking, new", and weaning ourselves of the notion that this kind of work, manufacturing and fabrication, is somehow a dead art in America, that Americans find this work beneath them somehow.

Ultimately, this technology would become an export, and a lion-sized one to boot. We'd be able to balance our trade and budget deficits, and make some paydowns of our national debt, probably just in time for the next recession.