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Yesterday, I said...
Mar. 4th, 2009 03:57 pmYesterday, I said:
A lot of people are talking about the Obama stimulus as comparable to that provided by World War II, and meaning that in a good way - that it's a deficit-spending splurge on that sort of scale, with the specific intent to snap the US out of a deflationary recession or depression.
That's all well and good, but I want to point out a few key differences between these two scenarios.
1: Before World War II, there were 11 years of depressed demand - severely and necessarily so. A lot of people spent a lot of time not buying things they wanted. Add World War Two, and you get about 15 years total. And even with that, the US fell into a scary recession after the war.
2: World War II was almost four years of high-wages combined with the above-mentioned suppressed demand. People had money, by comparison to the previous decade, but had relatively few places to spend it. Over US$54B in war bonds were included in that alone - roughly 25% of 1945's GDP, which had doubled since 1940. None of that has happened yet, and, indeed, it seems almost that the point is to avoid having this happen; the savings rate is finally starting to jump up, and economics are worried about it.
So you have years of repressed demand and huge savings, neither of which are true today. Finally:
3: By World War II, the various frauds of the 1920s had been washed out of the system. The wealth destruction process - both constructive (destroying fake wealth) and destructive (destroying real wealth) - had run its cycle.
That hasn't happened yet either. The systemic fraud is largely still in place, and people are still trying to magically turn it into real money, or swap it for tax dollars, or whatever. (See, for example, the black hole of finance known as AIG.) Hence: no confidence in the markets. Hence: people unwilling to go long even overnight (c.f. today's end-of-day selloff).
Nrs. 1 and 2 are real problems with this approach, but nr. 3 will destroy this plan entirely, if unaddressed; all this expenditure will be thrown down a toilet; and frankly, I really worry that the bond market won't put up with it. So when people go on about "this is the World War II stimulus," remember that well, that's as may be - but this isn't World War II and this isn't 1941, or anything too much like it.
And that's your thought for the day. This rally may have legs; technicals predict so, anyway. However, Ford's horrible results have punched their stock in the teeth in the overnights, and reality trumps even True Believers. Good luck.
There's technical argument for being at the bottom of a wave-3-of-5 (or whatever you choose to call it; some people call it 3 of 3, regardless, it's the third and final leg down in a series) and therefore it's time for a retrace up across all markets, but it's tenuous and right now I'm not sure people are paying all that much attention to technical up indicators....well, I guess they are! Paying attention to that, I mean. They certainly didn't care about the terrible Beige Book report, or the awful ADP jobs survey. (Note also: January was revised, again for the worse.) But note the selling into the close.
A lot of people are talking about the Obama stimulus as comparable to that provided by World War II, and meaning that in a good way - that it's a deficit-spending splurge on that sort of scale, with the specific intent to snap the US out of a deflationary recession or depression.
That's all well and good, but I want to point out a few key differences between these two scenarios.
1: Before World War II, there were 11 years of depressed demand - severely and necessarily so. A lot of people spent a lot of time not buying things they wanted. Add World War Two, and you get about 15 years total. And even with that, the US fell into a scary recession after the war.
2: World War II was almost four years of high-wages combined with the above-mentioned suppressed demand. People had money, by comparison to the previous decade, but had relatively few places to spend it. Over US$54B in war bonds were included in that alone - roughly 25% of 1945's GDP, which had doubled since 1940. None of that has happened yet, and, indeed, it seems almost that the point is to avoid having this happen; the savings rate is finally starting to jump up, and economics are worried about it.
So you have years of repressed demand and huge savings, neither of which are true today. Finally:
3: By World War II, the various frauds of the 1920s had been washed out of the system. The wealth destruction process - both constructive (destroying fake wealth) and destructive (destroying real wealth) - had run its cycle.
That hasn't happened yet either. The systemic fraud is largely still in place, and people are still trying to magically turn it into real money, or swap it for tax dollars, or whatever. (See, for example, the black hole of finance known as AIG.) Hence: no confidence in the markets. Hence: people unwilling to go long even overnight (c.f. today's end-of-day selloff).
Nrs. 1 and 2 are real problems with this approach, but nr. 3 will destroy this plan entirely, if unaddressed; all this expenditure will be thrown down a toilet; and frankly, I really worry that the bond market won't put up with it. So when people go on about "this is the World War II stimulus," remember that well, that's as may be - but this isn't World War II and this isn't 1941, or anything too much like it.
And that's your thought for the day. This rally may have legs; technicals predict so, anyway. However, Ford's horrible results have punched their stock in the teeth in the overnights, and reality trumps even True Believers. Good luck.
