US Treasury Secretary a True Believer in Economic Recovery
Welcome to the Recovery!
Stocks rose 44 points on the Dow yesterday. Oil stuck at $82. Gold rose $8. No clear trend on Wall Street.
“Welcome to the recovery,” says the headline in The New York Times.
What is this? Some kind of joke? No, it’s America’s Secretary of the Treasury, Mr. Timothy Geithner…
When we first read the headline, we thought it was tongue-in-cheek…or outright sarcasm. But Mr. Geithner at least sets out on the right foot:
The devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes. The scars of the crisis are fresh, and every new economic report brings another wave of anxiety.
He’s right about that. After all, nearly one out of every ten workers is officially out of work. Of them, 1.4 million have been out of work for 99 weeks or more. They are no longer eligible for unemployment benefits. And there are millions more who have simply given up altogether. They’re no longer looking for jobs, says the Bureau of Labor Statistics, so you can’t call them ‘unemployed’ even though they are the most unemployed people in the country. Not only that – they don’t have jobs!
And here’s the lastest news report from Bloomberg:
Spending Stagnates, Home Sales Drop
Aug. 3 (Bloomberg) – Consumer spending, pending home sales and factory orders were all weaker than projected in June, showing the US recovery lost momentum heading into the second half of the year as employment stagnates.
Household purchases, which account for about 70 percent of the economy, were unchanged from May, according to figures from the Commerce Department issued today in Washington. Contracts to buy existing houses unexpectedly dropped for a second month and factory bookings fell more than twice as much as economists estimated, other reports showed.
Elsewhere in the news it is reported that more consumers than ever before are going bankrupt – as many as 1.6 million of them this year.
Those who aren’t going bankrupt are hastily building up their reserves. Another report in The New York Times tells the tale:
A new government report released on Tuesday showed that consumers saved 6.4 percent of their after-tax income in June, and that this savings rate had shot up as high as 8.2 percent in May 2009. Before the recession, the rate had hovered at 1 to 2 percent for many years.
“The optimistic view is that this means consumers have built up a bit more of a cushion than we thought,” said Nigel Gault, chief United States economist at IHS Global Insight. “If they’re in better financial shape than thought, then maybe they could spend a little bit more freely going forward.”
That is not likely to happen anytime soon, though, he said. “It’s difficult to see consumer spending doing a lot better until we see more job growth,” Mr. Gault said.
Mr. Bernanke made the same comment on Monday. Until people see real growth in their incomes they’re not likely to spend more money. And if they don’t spend more, it’s hard to see where businesses will get more revenue. And if businesses don’t have more revenue, how are they going to make more money and hire more people?
Give it time. Eventually, prices fall to where there are bargains to be had. And eventually people pay down their debts. And eventually their autos wear out and their clothes go out of style. And then they go shopping.
That is not a ‘recovery’ of the economy that existed in ’05-’07. It’s a new economy. It’s a more careful economy. It’s an older economy, bent over with a burden of debt it can barely carry.
But the US Secretary of the Treasury is paid not to understand what is going on. He is a cheerleader for the losing team:
The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.
He then takes up an inventory of all the improvements that have come about since, including:
- American families are saving more, paying down their debt and borrowing more responsibly. This has been a necessary adjustment because the borrow-and-spend path we were on wasn’t sustainable.
- The auto industry is coming back, and the Big Three – Chrysler, Ford and General Motors – are now leaner, generating profits despite lower annual sales.
- Major banks, forced by the stress tests to raise capital and open their books, are stronger and more competitive. Now, as businesses expand again, our banks are better positioned to finance growth.
- The government’s investment in banks has already earned more than $20 billion in profits for taxpayers, and the TARP program will be out of business earlier than expected – and costing nearly a quarter of a trillion dollars less than projected last year.
You could argue with each of these points. The $20 billion in “profits,” for example, came at a cost of $1.25 trillion in support from the Fed. And the banks are stronger because the Fed lends them money at 0.25% interest and then the federal government borrows it back at 3%. Good business for the banks. Bad business for the government, the taxpayers and the citizens.
The arguments are phony. So is the recovery itself. They’re welcome to it.