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Do You Believe We're In Economic Recovery?

Economics / Economic Recovery Aug 08, 2010 - 10:03 AM GMT

By: Justice_Litle

Economics

Best Financial Markets Analysis ArticleTreasury Secretary Tim Geithner has a message for the American public: "Welcome to the Recovery." As a joke it might be funny – but it isn't...

I read something this week that made me laugh out loud – though it wasn't supposed to be funny. Treasury Secretary Tim Geithner, aka Turbo Timmy, has an opinion piece in The New York Times titled "Welcome to the Recovery."


The title alone is worthy of mirth. It has a certain musical reminiscence to it: "Welcome Back My Friends to the Show That Never Ends," or perhaps "Welcome to the Machine."

"The devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes," Geithner begins. "The scars of the crisis are fresh, and every new economic report brings another wave of anxiety."

The opening two sentences are frank and on target. But before long, the piece quickly veers into cloud-cuckoo land. Having taken a perfunctory stab at credibility by first citing what is plain as the nose on our faces, Geithner then seeks to twist our minds and avert our eyes. It's really actually OK, we are supposed to conclude. Things are getting better.

The data points cited by the piece appear true enough, insomuch as an NYT fact-checker would not dispute them. But as some wag once said, "there are lies, damn lies, and statistics," and Timmy's rosy data points are designed to deceive.

To understand why the Geithner op-ed is a fine piece of Machiavellian craftsmanship, it's helpful to revisit Swordfish, a 2001 action flick starring John Travolta and Halle Berry. In the movie, Travolta plays Gabriel, an amoral criminal mastermind who answers to a higher calling.

Gabriel: Have you ever heard of Harry Houdini? Well he wasn't like today's magicians who are only interested in television ratings. He was an artist. He could make an elephant disappear in the middle of a theater filled with people, and do you know how he did that? Misdirection.

Stanley: What the [bleep] are you talking about?

Gabriel: Misdirection. What the eyes see and the ears hear, the mind believes.

Disappearing the Elephant

In "Welcome to the Recovery," Geithner goes for a little of that old Houdini magic.

Geithner is not merely trying to convince Americans that, despite what they see and hear and experience on a daily basis, things are actually getting better. No, his ambitions are much grander than that. He is trying to make an elephant disappear.

The elephant in this case is the blatantly rigged nature of the system, and the atrocities committed in the name of propping up and preserving that system at all costs. We are supposed to forget what happened with AIG. We are supposed to forget the Christmas Eve Coup. We are supposed to forget the hidden puppet masters dwelling in the shadows.

But most of all, we are supposed to forget that the U.S. financial system, with its powerful lobbying arm reaching deep into the bowels of Washington, is designed to be a well-funded oligarchy, first and foremost serving those at the very center.

It has been this way, more or less, since 1913. The rules have always favored the largest and best connected... as one would only expect, as these same players have the most clout in molding and shaping the rules.

(By the way, you should hear what my fellow editor Adam Lass has to say about the economic recovery. Sign up here for his investment commentary.)

What's new in this latest round of crisis, though, is the bright white dividing line of clarity drawn between "haves" and "have nots." When the system became so leveraged, so close to meltdown as to threaten total collapse, all the customary niceties were abandoned – and it became clearly obvious who was worth saving (i.e. "too big to fail" at all costs) and who was not.

Washington is ruled by an oligarchic financial power structure, with those at the top convincing all below that they are "indispensable" on top of everything else... and thus that their healing and well-being must come before all else, at the expense of every average American if need be. That is the elephant Geithner wants us not to see.

A False Prognosis

Geithner cites seven bullet points of "good news" – a mix of massaged data points and plausible conjecture – to argue that the recovery is here and on its way. He talks of booming exports... returning job growth... repaired balance sheets... banks on the mend, and so on.

The most pressing issues, of course, are artfully dodged. There is no talk of the following at all:

  • Post-stimulus slowdown risk: The increasingly likely odds that the economic booster effects of stimulus programs were temporary, and are now wearing off.

  • Corporate anorexia and long-term job loss: The reality that public companies continue to hit earnings targets and boost profits by slashing jobs and capital expenditure, preparing to work from a permanently reduced revenue base moving forward.

  • Small business in a death spiral: Per the Naked Capitalism blog, "A Wells Fargo/Gallup survey of 604 small business owners conducted in early July showed a plunge in already negative readings to new lows. This gloomy outlook matters because small businesses were the biggest source in job creation in the last upturn..."

  • Personal bankruptcies still on the rise: Per the WSJ, "More Americans filed for bankruptcy protection in July, reversing a trend of declining filings over the previous three months and highlighting the continuing financial struggles of many consumers..."

  • Balance sheet unknowns: Banking analyst Meredith Whitney argues that bank balance sheets only appear to have improved via the use of accounting tricks, such as reduced set-aside provisions for future losses. Meanwhile, Brett Arends points out that, while corporate cash levels are at record highs, so too are corporate debt levels. The private sector is still heavily leveraged.

  • Sovereign debt woes: The reality that a majority of Western world nations (plus Japan) have inflated their public balance sheets to dangerous size, with the threat of an Icelandic or Greek style crisis still hanging over Europe, the United States, Japan and others.

Those are just a few items on the plate that Geithner's "Don't worry, be happy" stance did not address. There are more concerns too – not least the fact that we are at the tail end of a 25-year leverage and debt supercycle (yet still living in denial of that reality), or the growing dangers of a housing market double dip, or the painful truth that the flood of stimulus thus far has flowed into the pockets of those who need it least, rather than those who need it most.

As for when a genuine "recovery" can be expected, your humble editor would wager it will not be until we give up the fantasy that two leveraged wrongs can make a right. We will not get out of debt by putting ourselves in more debt. We will not revive the free market and the private sector by grossly expanding the public sector. And we will not see a revival of local lending institutions and small businesses – still the backbone of the U.S. economy – until we abandon the belief that a cadre of financial behemoths at the top can bleed the country dry with no consequence. These fictions have not yet been disgorged.

How about you? Do you believe we are in economic recovery, as Geithner suggests? Or does it still have to get worse before it gets better? Are Geithner's improvement metrics fair, or is he trying to pull a Houdini and take our eyes off the elephant? If there is still harsh medicine to come, how harsh could it get? Share your thoughts and observations here: justice@taipandaily.com.

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Source : http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-080610.html

By Justice Litle
http://www.taipanpublishinggroup.com/

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

Aside from his career in the financial industry, Justice enjoys playing chess and poker; he enjoys scuba diving, snowboarding, hiking and traveling. The Cliffs of Moher in Ireland and Fox Glacier in New Zealand are two of his favorite places in the world, especially for hiking. What he loves most about traveling is the scenery and the friendly locals.

Copyright © 2010, Taipan Publishing Group

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