We have not yet rebuilt our economic engine, but that isn’t stopping some people from looking down the road.
There’s a lot of talk of revival and V-shaped recoveries these days. But so far, the only thing holding up the economy is still government support, and I have not yet heard one good explanation of what’s going to come along to replace Uncle Sam’s helping hand.
Essentially, the economy is like a car without an engine, and the government is driving the tow truck. What is going to drive consumer demand, which will drive inventory rebuilding, which will drive hiring and wages, which will drive consumer demand again?
It is very important to understand that the government’s gone far beyond what it usually does to combat recession. Trillions have been thrown into the economy in an all-out effort to stop the slide into depression and restore consumer spending patterns. Bailout schemes that involve hundreds of billions of (borrowed) taxpayer monies have become routine.
At some point, some thing in the private sector is going to have to replace those government supports. It hasn’t come along yet, but a lot of people aren’t waiting for it to appear.
Barclay’s stirred the pot earlier this month, predicting GDP would grow at a 5% rate in 2010, above most estimates. Essentially, the firm’s holding to the old adage that the sharper the slide, the sharper the rebound. It’ll be a V-shaped recovery, they’re saying, because it’s always a V-shaped recovery.
This morning, a note from BofA-Merrill crossed my desk. Merrill says fears of a double-dip are overblown, because if one were coming, the government would just step in and redouble its stimulus efforts. There won’t be a return to recession (if indeed we’re actually out of it,) they’re saying, because the government won’t allow it.
But I have not read or heard anywhere one person explain credibly what’s going to replace government stimulus. What’s going to be the Cabbage Patch doll that gets the economy humming again? Housing? Finance? Tech?
Anybody who thinks government spending somehow can create a self-sustaining recovery should look very closely at the cash-for-clunkers program. The boys down in Washington decided to juice auto sales (not a bad idea in itself, seeing as We the People own two auto companies) by offering a $4,500 rebate on new-car sales. It worked like a charm – until it ended. Auto sales are now trending below the levels they were seeing before the program started.
The hope all along has been that the Fed and Congress and the White House could throw trillions into the economy, spark the business cycle, and deal with the ramifications of their spending spree down the road.
It may yet happen. But, I will repeat, I have yet to see anything on the horizon that has the ability to drive and sustain the business cycle outside of federal monies. And I am not opposed to being shown it, so if somebody has an idea, please feel free to present it. In fact, you’d be doing me and all the other readers a favor.
Until something does show up, I will remain skeptical about any talk of V-shaped recoveries.
LarryIowa
Mike, CO
Alex
September 30, 2009
“government’s gone far beyond” – in terms of spending $, agree – 95% going to wall st – in terms of helping employment, no. Imo, we should have spent the $ on a new wpa for infrastructure, while letting banks, gses and insurers get wiped out, simultaneously creating institutions to fill the gap, as we have done before. It will be hard to spend more now…