Welcome to the Recovery … We have a long way to go to address the fiscal trauma and damage across the country, and we will need to monitor the ups and downs in the economy month by month. The share of workers who have been unemployed for six months or more is at its highest level since 1948, when the data was first recorded, and we must do more to ensure that they have the skills they need to re-enter the 21st-century economy. Small businesses are still battling a tough climate. State and local governments are still hurting. These are considerable challenges, but we are in a much stronger position to face them today than when President Obama took office. By taking aggressive action to fix the financial system, reduce growth in health care costs and improve education, we have put the American economy on a firmer foundation for future growth. And as the president said last week, no one should bet against the American worker, American business and American ingenuity. – New York Times / Timothy Geithner (left)
Dominant Social Theme: Thank goodness for the Obama administration.
Free-Market Analysis: Timothy Geithner has written a long, self-congratulatory New York Times article entitled "Welcome to the Recovery." In it, he points out that the US is gradually beginning to do better economically and that the country is "on the path back to growth." The recession, he writes, began in late 2007 and was quite deep, but the Obama administration acted quickly to arrest it.
Geithner writes that the economy has a long way to go reach its full potential but has made a good start. He is sympathetic to workers still out of work but claims better days are coming. He admits the data shows that the "recession" was even deeper than previous numbers evince but concludes that "no one should bet against the American worker, American business and American ingenuity. We suffered a terrible blow, but we are coming back."
One wonders who "we" are. We haven't noticed that either Geithner, nor the president who is on the golf course or generally on vacation every chance he can get, has "suffered a terrible blow" that we can see. American business and ingenuity has indeed suffered, but we would argue that government has been the proximate cause – not the solution.
Some of what Geithner writes – which he no doubt construes as soothing – sounds more like a threat to us. He writes for instance that the American economy has a long way to go to reach full potential. If by this he means that he wishes to see the same feverish activity that presaged the bubble economy of the 2000s, then we would argue that the US economy ought never to reach such a capacity again.
He makes the point that a surge in imports indicates that demand in America is healthy and growing. Demand for what? From our point of view, not all import demand is healthy as some of it simply indicates that America is making less and less as the "service" economy takes hold.
You know, this is no ordinary recession. In fact, it is a crack-boom that has taken something like US$20 to $30 TRILLION to stabilize in Europe and the US – and thus the Obama Administration's various actions are in a sense trifling. We estimated once that the total cost of reflation would be in the area of US$100 trillion. No one will ever know of course, but we still believe that's a fair figure. And it is quite a lot because – we would argue – the 20th century monetary system effectively ended in 2007. Something else is coming, we're just not sure what.
Geithner makes the requisite melancholy noises regarding American unemployment, which according to government figures hovers around 10 percent. Others think it is more realistically 20 percent – and we think it is actually nearer 30 percent. This is of course the trouble with a fiat-money economy. It inflates so fast that it sucks the oxygen out of people's jobs. They see others are making two, three, four times what they are making in a given field and they quit to seek greener pastures, not understanding the nature of monetary inflation. When the boom collapses, so do their new, profitable, fashionable gigs.
This has happened over and over again during the past decades. And every time the wave washes up and then retreats, it takes more good jobs with it. The effect is tremendously distortive. Government and its central banks, in fact, cannot create jobs but can certainly remove them. The American economy from our point of view is going through a kind of South Americanization process. We've pointed this out before. South American economies are notoriously polarized. A handful of extraordinarily wealthy families and businesspeople own all the industrial and financial businesses of consequence. Everyone else is on the street, metaphorically speaking, selling cell-phones to each other at ever-more competitive prices.
The state of American industry is not healthy in our estimation. So much of America's industrial might has eroded. (And, no, we don't accept the idea that a service economy can take its place.) GM's latest auto was unveiled the other day, a US$45,000 electric car that can only travel short distances at a time. GM executives admitted the car was costly for its performance and then claimed that federal government rebates on the car of up to US$10,000 would make the car competitive. From our point of view the destruction of GM is complete, metaphorically anyway. It depends on the government for financing and then depends on government largesse to make its uncompetitive autos marketable.
Geithner can claim victory if he wants in the pages of the New York Times. But such a victory will be a hollow one indeed. If the Administration has truly managed to reflate the US bubble economy, the result will be an even bigger crash next time around (and that would be a mighty crash indeed). However, we have seen more and more predictions that the West is entering a kind of Japanese lost decade. That smells about right to us.
America's entrepreneurial vitality has been increasingly neutralized by a torrent of regulations, massive new entitlement programs and de-facto tax hikes pouring out of Washington. The can-do spirit of America has turned rancorous due to the corruption in government at all levels and especially because of the increasingly well-understood and immoral mechanism of central bank money creation.
Finally, there are the wars and the growing power of the American military industrial complex. Put all of these factors together and you end up with an increasingly authoritarian culture that values conquest and consumerism more than innovation and production. Geithner and Co. may visualize such a state of affairs as a "recovery." We see a calm before the storm.