Sunday, March 22, 2009

Economy - Optimists vs. Pessimists ???

Send in the realists or send in the clowns?

Economic utterances flying through the DC air, like springtime dandelions, are often only fodder.

So it is often difficult to tell who or what to send in.

We hear spokespersons saying over and over again "we always come out of economic crises". Some writers in a Newsweek article have picked up on that:
The good news from our historical study of eight centuries of international financial crises is that, so far, they have all ended.
(Newsweek, emphasis added). Good point. However, the fact remains that it is the last or final economic crisis which has taken down the empires we read of in our history books.

The essential exercise, then, is to make certain one does not enter into the final crisis. Certainly that means more than sticking our heads in the sand.

In that regard, Newsweek is saying, among other things, that the white house has flip flopped by focusing too much on the notion of confidence.

The Newsweek article, by two well known economists, says that the Obama administration's position on the economy has gone from pessimistic to optimistic:
The U.S. administration, for example, is now predicting that growth will renew in the latter part of this year and continue at a brisk pace of 4 percent for several years thereafter. Is this a fact-based forecast or wishful thinking?
(ibid). While the prospect of those numbers isn't bad, what is bad these economists say, is that there probably isn't a sufficient factual basis upon which to base the optimism.

The long awaited doublespeak program (my description), who some say will be unveiled tomorrow, may be a case in point:
The Treasury Department will unveil the next step in its financial rescue efforts tomorrow, announcing that it intends to create a government body, called the Public Investment Corp., to finance the purchase of as much as $1 trillion in soured loans and toxic assets from ailing banks, according to sources.

The plan calls for the new entity to combine its resources with the Federal Deposit Insurance Corp., the Federal Reserve and private investors to buy those loans and other assets. But the government will put far more money into the deals and take on more risk than the investors, which could include hedge funds, private-equity firms, pension funds and foreign investors with U.S. headquarters, the sources said. The corporation will be funded with $75 billion to $100 billion from the $700 billion financial rescue package.
(Washington Post). If the economy is going to return later this year, then proceed at a 4% growth rate thereafter, why take more money from the taxpayers and give it to bad performers on Wall Street?

This one action of the government, to me, does not seem to be in step with what it is saying about how good or how bad the economy is.

UPDATE: Nobel Prize winning economist Paul Krugman had recently criticized the "toxic asset" plans of the Obama Administration, but administration spokesperson Christina Romer said Krugman's criticism was very unfair.


  1. All I can say is, we must separate the wheat from the chaff to get a real valuation of the harvest. We know that the chaff is not salable, just as we know that the "toxic assets" which are actually liabilities, are not salable in their current condition. They are mirages, like on a desert highway. The housing bubble was like smoke in our eyes. Stand back from the fire to get a clearer view of what there is to see. By the time we get our eyes clear, what there is to see may be already consumed by the fire.

  2. Three more banks bit the dust on Friday: the taxpayers picked up most of the tab.

    We are an insurance company fellow taxpayers!

    It is a special insurance company where we have to pay them to insure them ... our company execs are doin' a heckuva job for us aren't they?

  3. There is a lot of heat from friendly fire toward the Obama bail out plans which they say does not make sense.