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Friday, May 31, 2013

Putting Lipstick on the Pig

At 8:25 this morning, I heard CBS business news tell me that there are still many people who refuse to see that the economy is doing well.  According to the CBS reporter, these people "find a cloud behind every silver lining."  Almost immediately after that, we got the report for consumer income and spending in April.  According to this government report, personal income fell in April by 0.1% and consumer spending fell by 0.2%.  This may not sound like much, but you should realize that the drop in consumer spending was over twenty billion dollars.

The point here is not that the numbers were terrible; they were not.  These figures could best be described as mediocre.  No, the point is that the economy is not doing well; it is still stuggling forward at a slow pace.  Indeed, just a day ago, the growth of the economy in the first three months of the year was adjusted to lower the rate of growth to 2.4%, hardly a "good" number.  If April's income and spending numbers are any indication of where the GDP is headed, the second quarter figure should be lower even than that for the first quarter.

Meanwhile, interest rates have risen in dramatic fashion over the last month.  Ten year treasury bonds are up by 40 basis points in the last thirty days.  Mortgage rates have risen with the treasuries.  All of this has happened because the possibility of the end of quantitative easing was raised by the Fed.  The central bank has continued to pump massive amounts of funds into the economy but just the hint that this practice may stop has caused panic in the bond markets.  Just imagine what will happen when the Fed announced that it has reduced its bond purchases.  That day is coming.

It is ridiculous for commentators and news organizations to try to make the economy look rosy when that is not the case.  The stock market has done well.  That's it; the stock market is what has done well.  That means that the Obama economic plan has benefitted the rich.  The people who have enough money to have substantial investments in the markets have gotten a big boost from the rising stock market.  The poor and middle income folks who are struggling to get by are still struggling.  The high stock market does not help them.  Even the rise in home prices has not yet helped those who were buried by the financial crisis.  Many already lost their homes to foreclosure.  Others are so far under water that even a ten percent rise in home prices leaves them in just the same jeopardy.

We need to address the actual causes of our economic problems with some new ideas.  Obama's Keynesian economics with a European Socialist twist do not work.  Look at Europe if you doubt this. 



 

 

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