American consumers are finally coming out of hiding. After months of penny-pinching amid the recession, new figures – showing an improving job market, rising factory output and increased retail sales – suggest that consumers are no longer restricting their budgets to necessities like food and medicine. They are starting to buy clothes, jewelry and even cars again. The mood has gone from panicked to cautious, and now, as Mark Zandi, chief economist for Moody's Economy.com put it, some consumers are "almost a bit giddy." After the financial crisis hit in late 2008, consumers retrenched heavily. And in the months that followed, there were fears that newly frugal Americans would increase their savings so much there was no hope that consumer spending could be a factor in a recovery. That was a troubling prospect because consumers have been the drivers of economic growth after past recessions. After all, their spending accounts for more than two- thirds of all economic activity in the United States. But just a year later, consumers have eased off a bit on their savings, which frees up cash for them to spend. And in part because of the high rate of mortgage defaults, the overall consumer debt burden has been dropping. Those trends suggest to some economists that consumers may now be in a position to help drive the recovery. – New York Times
Dominant Social Theme: It was just a bad dream. And now the economy has bounced back.
Free-Market Analysis: Are American consumers really a bit "giddy?" We have mentioned already the amazing amount of attention in the mainstream press to the nation's recovery, even though we have a hard time discerning one. For us, a recovery begins with jobs, and it hard to see how a nation with a self-confessed unemployment rate near 20 percent (we think it much higher) can support an unbiased media that squeaks with enthusiasm at every uptick like a mouse finding even the smallest of crumbs.
The New York Times is not alone in its announcement that the American economy is on the mend, not by a long shot. We counted the headlines on Bloomberg.com the other day and found to our astonishment that the majority announced that the American financial crisis was basically over. Again, if the job numbers were not so dismal we might be slightly more apt to share in the optimism. But we recall the continued dismal news on the European front, our doubts about China's ability to control what seems to be a fairly large patch of price inflation, and the general dread of "another shoe dropping" in terms of the unraveling of sovereign debt and commercial real estate.
Are we alone in our skepticism? The New York Times, probably for very good reasons, does not carry much in the way of feedback. But we found an article on a fine contrarian website, Dollarcollapse.com, that presented a viewpoint somewhat similar to the Times article excerpted above – though it is far more sophisticated, insightful and skeptical than the Times report (and therefore better written). Additionally, the article by John Rubino had attached to it a considerable commentary, and some of those comments were most interesting from our point of view. First, an excerpt from the article which is entitled Now Start Watching Interest Rates:
The phase change happened almost imperceptibly. One month we're shedding jobs and agonizing over a long list of insolvent European countries and US states – and the next month we're back in a bubble. U.S. employment has stopped shrinking and started growing. Iron ore is up 170% in the past year and oil is flirting with $85 a barrel. Hot money is back to chasing emerging market securities and junk bonds. Stocks, as a result of all this, are up pretty much everywhere and the media is full of stories declaring the Great Recession over and "normal" times just around the corner.
Score Round One for the unlimited printing press. Flooding the world with new fiat currency stopped the implosion, and it only took as long as it did because traumatized banks and hedge funds needed some time to recover from their near-death experience. But eventually they did recover, because that's the nature of free money … Bond markets seem to be figuring out that they're the patsy in this scenario. The yield on 30-year US Treasuries has been creeping up for a while, and interest rates jumped across the board on Friday, when the U.S. reported those nice employment numbers.
Rubino wrote well about rising interest rates accompanying a recovery and "choking it off" – and about the cynical methodology of money printing that initiates these recoveries, such as they are. But some feedbackers were dubious about the whole proposition. By far the most eloquent feedback in this regard was from someone named Bruce C. We reproduce it, as follows:
It's BULLISH No Matter What! …
The price of oil is rising – BULLISH! More profits for the energy companies, and more investments in "clean energy."
Most of the new jobs created in March were part-time or temporary – BULLISH! Since the economy has turned the corner full-time job offers are practically a sure thing.
But didn't wages go down too? – BULLISH! Revenues – Costs = Profits!
41 states have revenue shortfalls – BULLISH! Various states have always complained about shortfalls. It's another sign that things are getting back to normal.
8 million people are still unemployed – BULLISH! That's 8 million spenders, not savers.
Interest rates are rising – BULLISH! Yet another sign that the economy is getting stronger.
Stocks may be going up but on very low volume – BULLISH! That means the "dumb money" hasn't even bought into this rally yet.
People have a lot of concerns and uncertainty about the future – BULLISH! Not until the "wall of worry" ends will this party be over.
So much new liquidity will cause inflation – BULLISH! Stocks are one of the best hedges against inflation.
The wars in Iraq and Afghanistan are bankrupting us – BULLISH! Don't get mad, get even. Debit the Treasury and Credit the defense companies.
Inflation in China is picking up – BULLISH! That should dampen any bubbles that some people worry about.
Gold is going up in price – BULLISH! This is a broad-based rally.
Wait, maybe gold is going down – BULLISH! That means economic fears are dissipating.
Actually the gold price seems to be consolidating and moving sideways – BULLISH! A sell off or rally would mean things are overheating.
Iran seems determined to develop it's nuclear program – BULLISH! More nuclear power plants means less demand on oil which means lower energy costs which means more profits.
Israel may be forced to handle Iran themselves militarily – BULLISH! That will kick-start the construction industry when we rebuild both sides.
The Health Insurance Reform bill is an abomination – BULLISH! If insurance premiums rise there will be subsidies; if doctors check out they'll be replaced with cheap foreign ones; if care is rationed then costs will be controlled and profits ensured.
And now the student loan programs are nationalized – BULLISH! Good riddance for the banks. Now the government can garnish wages and lower the deficit.
The markets are being purposely manipulated with government money – BULLISH! What's not to like? That means the market ain't going down no matter what.
Big Media is spewing propaganda about the economy – BULLISH! Perception is reality. People only know what they're taught. Advertising works.
Greece may default – BULLISH! Greek bond holders will make up their loses in the stock market.
Japan is a bug in search of a windshield – BULLISH! Just imagine how much more deficit spending we need to do to beat them.
The Euro is getting weaker – BULLISH! King dollar is back.
A $400+ trillion financial mine field of derivatives are set to go off – BULLISH! Let's start the rumor that if the stock market tanks we'll all be dead.
We are most interested in Bruce C.'s response because it skillfully expressed a singular dominant social theme – that once past the initial crash, stocks are continually ON THE MEND in any recession. This is a most important power elite promotion, and an inevitable one. Facts are not allowed to stand in the way. Difficulties are to be minimized or ignored. Perception is all. If the market itself is not cooperating, central banks can always print more money and in various ways inject that paper into equities, which are inevitably seen as a bellwether of recovery (rightly or not).
Bruce C has cleverly delineated the rhetoric of this most pervasive of power elite promotions. During the later stages of a downturn, NOTHING must stand in the way of the perception that the stock market is advancing and the nation is healing. No matter what the news, it must be interpreted as a positive for the market – in the hopes of generating a self-fulfilling prophecy.
Yes, a dominant social theme is at work here – and Bruce C. has expressed it well (as well as Rubino expressed his points). It is surely a most important meme. The longevity of a central banking regime may in fact depend on controlling perceptions. Let people believe that the "bust" may be nearly as long as the boom and the credibility of the system is gradually dissipated.
It seems to us that the power elite, which both organizes and defends the current economic regime – featuring the anti-democratic operation of central banking – is most dependent on media-created perceptions that minimize the bad and emphasize the good. The message, in other words, must be congruent with the system. No matter how long the downturn lasts in actuality, the perception of its lifting must inevitably begin long before its actuality. This can be confusing for investors and is yet one more reason why approaching the marketplace in the 21st century should be carried out with a good deal of due diligence and forethought. The steeper the downturn, the more enthusiastic the rhetoric about recovery. Yet things are not always as they seem. Perception is often different than reality.