Taking The Temperature Of The U.S. Economy. Is It Healthy? … Seven years ago, the Federal Reserve cut interest rates to zero. David Greene talks to David Wessel of the Hutchins Center at the Brookings Institution about what impact this has had on the economy. – NPR
Dominant Social Theme: After so much time at the zero bound it's time to hike.
Free-Market Analysis: This transcript from NPR features host David Greene interviewing David Wessel, director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal.
Wessel is fairly sanguine about the US economy. But in this article, we will present a different point of view, as well, courtesy of libertarian publisher Simon Black whose work we often follow.
Greene asks Wessel the "bottom line" question: Is the economy getting better. Here's Wessel's answer:
Absolutely. The U.S. economy is unquestionably getting better, though it's not great for everyone. We've recovered all the jobs we lost during the great recession, and the government reported last week we now have four-and-a-half million more jobs than we did before the recession. The official unemployment rate, which peaked at 10 percent, is down to 5 percent. And broader measures of the job market are improving as well. But lots of people are still on the sidelines of the economy not looking for work because they doubt they can find it … It's growing so slowly that we're not yet at full employment.
This answer, from our perspective, really doesn't make much sense. The economy is only getting better if one believes that low rates have legitimately boosted the "economy." But would such an economy be getting "better" absent such artificial stimulus? Probably not, which really means the US economy is "juiced," to use a sports term.
Wessel tries to grapple with the slowness of the recovery and its lack of breadth by comparing the economy to a patient who has had a heart attack. He says the patient (the economy) is still ill because of the massive infarction (great recession). "The economy's recovered, but it's now suffering from arthritis and diabetes," he declares.
Unfortunately, such metaphors don't get to the root cause of the US's current economic dysfunction. The US economy has never been allowed to purge. In fact, the Western world's banking infrastructure was propped up by Ben Bernanke who seems to have sent trillions of dollars of short-term loans around the world (most apparently never repaid) in 2008-2009.
The US economy still suffers from this disbursement of cash because no one knows what companies are solvent and which ones are not. This has impeded the "recovery."
Wessel is more comfortable using metaphors about sickness than exploring the truth about central banking and how its interest-rate price fixing and loan giveaways to billion-dollar corporations have continually damped economies.
Simon Black, in one of his latest columns, is a good deal more realistic about Western economies and the US dollar in particular. In an article entitled "The massive bubble in US dollars is so obvious in this country" he explains how overpriced the dollar has become because of the artificial low rates of the Federal Reserve.
This distortion, he explains, will not last, though he suggests people take advantage of it while they can. Writing from South Africa, he begins the article this way:
When I did the math in my head last week, I had to pull out my phone's calculator just to make sure I hadn't mentally misplaced the decimal point. It turns out I was right. My rental car in Cape Town would cost me just $8/day. And that included all the silly taxes and fees and nonsense. Eight bucks. I imagine that the car depreciates more than that.
… This strikes me as truly bizarre. It's not like the economic fundamentals of the United States, and the fundamentals backing the US dollar, are particularly strong. The US dollar is issued by the Federal Reserve, a central bank that is nearly insolvent according to its own balance sheet.
And of course, the US economy is so 'strong' that the Fed has been agonizing for a year whether America is 'ready' for a 0.25% interest rate increase this week. Moreover, the US government is in debt up to its eyeballs and also insolvent according to its own financial statements. America's national debt, in fact, exploded by $674 billion just last month. This is nearly twice the size of South Africa's entire economy! It's pure madness to think that this is the 'strong' economy.
Simon Black's interpretation of what's going on seems more accurate to us than Wessel's. As he points out, the US is fundamentally broke – and broken. Over 40 million are on food stamps and over 100 million are said to be less than ideally employed or not employed at all. Industry has fled overseas and service jobs are the norm.
Most disturbingly, if one is a careful reader and viewer of the mainstream media, signs continue to present themselves regarding various asset bubbles. Expensive real estate and high-end luxury goods are once again in demand and gradually such bubbles can infiltrate the economy at non-luxury levels and do tremendous damage.
In fact, there is likely no real recovery and this is the reason Yellen is so agonized about raising rates, even a little. Regardless of Yellen's upcoming actions, the happy talk about the US economy will continue. But please don't believe the hype.
Continue to prepare for the reality underpinning the US economy's supposed recovery. That reality, a good deal blunter and colder, will eventually, unhappily, be realized.
