There was a quote in a story this morning in the Journal that just sticks in my craw. It’s from the Phil Izzo story Economists Optimistic on Growth. It came in the second paragraph:
“The U.S. economy appears to have successfully navigated the adjustment from a recovery driven primarily from economic stimulus and inventory rebuilding to one driven by private domestic demand and rising exports,” said economists at Wells Fargo & Co. “Three percent growth looks pretty good, particularly with housing stuck in low gear.”
With the Fed pumping roughly $80 billion worth of Treasurys into the marketplace every month, with the Fed holding interest rates at zero, with the President and Congress not only holding tax rates down, but cutting your payroll taxes to add a little more boost to spending, with the Treasury Department trying to give people their tax refunds via debit cards, for crying out loud, I find it hard to believe that the economy’s navigated anything on its own.
Now, contrast that with this comment from Gluskin Sheff’s David Rosenberg today:
The economy remains on government-assisted life support, and the government has been very successful in creating the illusion of economic prosperity. It is doing this to buy time and help preserve social stability as the adjustment towards housing deflation, consumer deleveraging, and chronic unemployment takes its toll on the growth rate in organic final demand.
If the economy had navigated anything on its own, if the economy had reached some level of sustainability, the Fed would be under intense pressure to raise rates. As it stands, there is no pressure anywhere to do so. Keep in mind, too, that a 0% fed funds rate was unprecedented before the Panic of 2008. Former Fed chairman Alan Greenspan lowered rates to 1% after the 2000 recession, and you saw where that got us. Zero is 1 less than 1.
So are we really sailing along on our own? Of course not. Not even close, actually. More from Rosenberg.
The question really is still one of sustainability. If the Fed and our public officials were as comforted as the financial markets now seem to be over the sustainability of the recovery, then after a full year into it the central bank would not have embarked on another monetary experiment and the government would not have dipped into Social Security as a means to put more change in people’s pockets for spending purposes. Money, as an aside, that isn’t really ours.