With all the excitement of the "obvious" economic recovery in the US, and the farcical sleight of hand by the Obama Administration claiming it has "created job" by taking from Peter to pay Paul, City AM's Allister Heath has a more measured view...
America’s growth rebound is good news as far as it goes. But the bulk of the third quarter’s growth rate was attributable to car purchases, construction and state spending. I still believe in a global square-root shaped recovery: a growth spurt starting in the third quarter, followed by a lengthy period of stagnation as budget deficits are cut and consumers deleverage. We shall see.
Bearing in mind car purchases were driven in part by subsidies, construction likewise, about the only US state spending that may have a productive spin off is spending on infrastructure that the private sector is crowded out from that is starved (such as roads), but that alone wont offset the net deadweight sunk cost of all of the other state spending.
The Obama and the Bush Administration both gambled that to NOT print money and spend it would make things worse - the question is whether it has simply made it gentler but last much longer, and for the cost to be born not by those who participated in the riskiest activities, but by future generations of taxpayers who gain nothing from current non-capital based government spending.
So despite the hype, a substantial number will not believe the recession is over yet, for right now there may simply be a government (future taxpayer) funded bubble of speculation and demand, that will be spent in the not too distant future.
America’s growth rebound is good news as far as it goes. But the bulk of the third quarter’s growth rate was attributable to car purchases, construction and state spending. I still believe in a global square-root shaped recovery: a growth spurt starting in the third quarter, followed by a lengthy period of stagnation as budget deficits are cut and consumers deleverage. We shall see.
Bearing in mind car purchases were driven in part by subsidies, construction likewise, about the only US state spending that may have a productive spin off is spending on infrastructure that the private sector is crowded out from that is starved (such as roads), but that alone wont offset the net deadweight sunk cost of all of the other state spending.
The Obama and the Bush Administration both gambled that to NOT print money and spend it would make things worse - the question is whether it has simply made it gentler but last much longer, and for the cost to be born not by those who participated in the riskiest activities, but by future generations of taxpayers who gain nothing from current non-capital based government spending.
So despite the hype, a substantial number will not believe the recession is over yet, for right now there may simply be a government (future taxpayer) funded bubble of speculation and demand, that will be spent in the not too distant future.
2 comments:
Despite what most permabears think, the global economy is in recovery. Most libs make themselves look silly by complaining that markets are manipulated/distorted when their own theories are getting hammered.
Expensive patches have been slapped on the tyres of the economy and its been pushed back on the road - until next time.
Most people are not devoted to concepts, and I doubt many of them worry that the market is less pure than it might be when it is giving them a good return. And this year has been spectacular in terms of risk/return. I expect the trend will continue next year as well.
It simply looks far worse in the UK, there is a small property bubble re-emerging in London due to the low pound. It has been a good year for capital gains, but is it simply in advance of some rather severe fiscal measures that will dampen it for some time?
NZ is relatively immune to this, the UK is not, the US is unlikely to confront it.
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