THINK back to last summer and the weeks around Christmas.
What did these two periods have in common?
I’ll give you the answer: They were happier, quieter times. The financial markets, for one thing, were behaving pretty well and stocks were even staging decent rallies.
There was no panic – even though we all knew the economy was contracting and we were quite aware that banks were struggling with tons of bad loans.
But people – both those elected to office and not – weren’t doing their best to convince each other how desperate the world financial situation was. We weren’t all wallowing deeply in self pity and getting to enjoy it.
Today I am going to be the cool head among all the loonies. And if you’ve been reading my column for any length of time you already know that I scored my points predicting that bad times were a comin’.
But suddenly I find myself among the calmer – and ahem, I dare say more optimistic – of the people writing about this stuff. So I guess my message in this column is simple: Get a grip.
To paraphrase FDR, the only thing we have to fear is allowing our politicians to scare us into thinking that the situation is hopeless.
Okay, let’s start with the latest “crisis.”
Last Friday the government announced a horrible employment report for January. The Obama administration, which is catching on quickly, used the loss of 598,000 jobs and an increase in the unemployment rate to 7.6 percent from 7.2 percent to scare the hell out of everyone.
“We can no longer posture and bicker and resort to the same failed ideas that got us into this mess in the first place,” President Barack Obama said yesterday as he tried to force what he’s been describing as an economic stimulus plan through Congress.
I told you months ago – and repeated in last Thursday’s column – that the employment report for January, Obama’s first, would be awful. How’d I know? It is always bad in the first month of the year because of statistical anomalies produced by the Bureau of Labor Statistics computers.
In this particular report, the government arbitrarily removed 356,000 jobs from the nationwide count because it believed – but can’t prove – that a large number of small companies disappeared in January.
Don’t get me wrong, the employment situation is horrible.
But it probably isn’t as bad as the government’s numbers would have you believe. The 598,000 job cuts last month – above the 525,000 the experts were expecting – were an exaggeration of a bad situation.
All good politicians know their cues and the employment report gave the new administration the green light on fear mongering.
So some time this week Washington will announce a way to bail out all the big banks that foolishly made bad loans.
And the Obama administration will also try to stimulate the economy, not with new ideas, like the president promised, but with the same old formula of government spending.
Before you think I’m Democrat bashing, Republican President George Bush and his Treasury Secretary Hank Paulson pulled the same trick last September.
Right before a hopeless election for his party, the Bush administration resorted to scare tactics. Without inciting widespread fear, Paulson could never have gotten Congress to sign off on a $700 billion Troubled Asset Relief Program appropriation without fully understanding where any of the money was going.
Two problems with the Obama plan, if you can call it that. And they are enormous problems.
First, the government can’t afford to spend close to a trillion dollars in the hope that this might stimulate the economy. Excessive spending – as President Obama didn’t bother to tell us – was the way we got ourselves into this mess to begin with.
For Washington to fund the spending this time around, it will need to borrow hundreds of billions of dollars more than it already does. The result will be higher interest rates ahead that will snuff out any economic growth that the increased spending might bring.
Rates are already rising against the wishes of the Federal Reserve and Washington.
The second problem is that no matter how you slice it taxpayers will eventually foot the bill if we try to get bad assets off the books of careless banks while also trying to protect the investment that Wall Street has in those banks.
Details of the latest charade will probably come out today.
Tim Geithner, the Treasury Secretary for the administration, has apparently abandoned his plan to create a “bad bank” that would assume all the so-called toxic assets – meaning, foolishly written mortgages, esoteric derivative securities and such – that are smothering the financial system.
The bad-bank concept made absolutely no sense. Bad assets can’t just disappear. If by some magic they did, investors would immediately realize what was going on: Geithner and Fed Chairman Ben Bernanke were running the printing presses to create more money to “buy” these assets.
Geithner now wants private investors to partly bail out the banks – which, of course, they won’t do without American tax payers guaranteeing that in vestors won’t lose money.
Scare us enough and we might actually go for this stupid idea. So what’s going to happen next?
The number of job losses will begin to moderate this spring. That improvement won’t be any more real than January’s awful number and the real economy – the one you and I feel in our gut – will continue to sputter.
