“We wait. We are bored. (He throws up his hand.) No, don’t protest, we are bored to death, there’s no denying it. Good. A diversion comes along and what do we do? We let it go to waste… In an instant all will vanish and we’ll be alone once more, in the midst of nothingness!”
– Samuel Beckett, Waiting for Godot
The economy was, once again, a big story last week as the reality of a weak job market and potential defaults in Europe swept over stocks. It was time to pay attention to things for a while before we move on and crank it up again as if nothing happened. It’s a pattern that has repeated once a quarter since the meltdown of 2008. But why are things stuck – and why does the financial world only seem to care in spurts? The answers are complex, but it seems that one world seems to have everything it needs except for a solid connection to reality. They only have to pay attention to it every once in a while, or so they think.
The situation for most banks and other financial institutions is what is often called a “liquidity trap”. They have an awful lot of money on hand thanks to bailouts and Quantitative Easing, but they have little reason to loan it out to the general economy. Interest rates run around 2-5% but inflation is currently running a bit higher, meaning there is no way to make money by making conventional loans. So they sit on their cash, buying government bonds that have been appreciating and looking for riskier investments that will give them a decent return. Every so often that risk looks worse than they might hope, at least until everyone can patch the operation together and then continue as if nothing is happening.
The two intrusions into an otherwise very quiet situation are Greece and the employment numbers. Both are being watched not just for their own value but their status as harbingers of something else. A wave of government defaults would cause a lot of trouble around the world due to the exposure owned by banks and continued unemployment could signal a return to “recession”.
Note that no one in the financial world is focused on the idea that this is a Managed Depression, which is to say that things will not get better on their own anytime soon. They don’t really seem to care because they have the resources to wait it out – assuming nothing really bad happens. The Federal Reserve has done just about everything they can to keep an even keel even if the government itself does little but fuss and fume about nonsense.
In short, the people with money appear to have given up. They have theirs. Keeping it safe is what they care about, not expanding it through investment.
How will we break out of this pattern? There is no reason to believe that we can until people insist that the government do something to create jobs. To the financial world, that means the creation of something that they can invest in to make more money than they have right now. What could be better to invest in than the greatest resource that this or any other nation has, the skills and strength of its people?
It may not be obvious what the government can do to get things moving again to most people. That’s because policy makers are completely lacking in imagination and leadership right now. Reducing the overhead per employee remains the most effective possible tool to kick-starting the job market, but any direct investment in job creation through a kind of New Deal will soak up the excess labor and, if done well, define new opportunities that are worth investing in. Note that it might also increase consumer spending, and thus corporate profits, but that’s not as important as it seems. We need to break out of the dull patterns that have defined the economy since the crash.
It’s the investment in people, our one real resource, which has been lacking.
So the holding pattern continues. The crises that flare up once in a while are telling us something, but those who have reason to understand them and solve the problems once and for all are stuck in a limbo between fat ‘n’ happy and scared silly. They handle this dichotomy by ignoring things as long as they can.
I don’t know that I blame the financial world for this behavior, but I certainly don’t find it acceptable. But we’re missing the leadership, political and economic, that could change it. Until then, we’re just waiting … and periodically decrying the lack of anything other than wait.
There are many links in this post to deeper explanations reaching back to 2008. So little has changed. I’d love to know what you think and what you have questions about – perhaps we can, as a group, work a few things out and define a way forward.