Home » Money » Summer’s End

Summer’s End

It’s the end of the third quarter of 2012, which is a decent time to look back and see where we are.   Economic news has been incredibly mixed lately, which following our mantra that good news is bad news means that we really don’t know what to think.  So let’s not try to think too hard and look ahead as we look backward at a strange quarter all around.

We’ll start with the jobs picture, which as noted before is either lousy or doing about as well as can be expected, depending upon which August report you believe.  Unemployment Initial Claims (the measure of insured people laid off last week) dove back under 360k last week, a number that is consistent with an economy that is more or less moving sideways.  It’s the perfect setting for an election, where the numbers can be spun just about any direction anyone wants.

Orders for “durable goods”, the fancy term for manufactured items designed to last at least three years, dove 13.2% in August.  That number is consistent with a lousy jobs report.  It’s also consistent with the diving consumer confidence index from August, which fell to 61.3 This is a survey where 50 is considered “neutral confidence” and 100 would be perfect confidence.  Since this rebounded up to 70.3 in September for no apparent reason, we can expect things are moving forward again.

Meanwhile, the Dow Jones Industrial average gained a solid 800 points through the whole quarter.  Some of this was anticipation and response to the Fed announcing QE3, the open-ended purchase of even more mortgages.  The people with money to play with turned bullish on the US economy in 3Q12 and never looked back.

What drove the blahs this summer?  It’s hard to tell, but the worst appears to be over – at least until it becomes worse again.

Meanwhile, news from around the world is not good.  Greece is sinking into undeveloped-world status and the people are rioting.  The Eurozone is constantly on the brink, with Spain trying to figure its way out of deficit without a lot of luck.  Developing nations are slipping as well, unable to continue the amazing growth that made it look like this Depression is really a solid changing of the guard globally.  Part of the reason the US Stock market is up has to do with the simple fact that we look pretty good right now, a decent sized duck in a really small puddle.

Looking ahead with what we have for guidance, it appears that we can expect to keep truckin’ along about as we have been.  Barring a big screw-up or a major collapse, Obama should be re-elected and will probably have a pretty similar Congress to deal with for at least two years.  That’s the bad news, at least when the budget comes to a head next December (after the election, ‘natch).

Meanwhile, there is other news that may or may not be important.  The bank regulators in the UK have announced that there will be a “complete overhaul” to the London Interbank Offered Rate (LIBOR).  This is the rough guesstimate for a decent rate set over cognac in a gentleman’s club that controls the terms of about $300 Trillion in global lending between banks.  The fact that this controls so much, and has fallen to the UK alone to reform, is proof enough that the global economic system is antique and totally not up to the needs of the modern economy.  No matter.  A different set of gentlemen promise us it will all be better now.

Without any strong leadership to complete the necessary restructuring at home or abroad, we can expect that everything will keep marching ahead to the next inevitable scandal and/or crisis.  What we can say about a strange quarter of ups and downs is that, in the end, it was the last of the summer – never a time to start a new project.  That is, except the projects that will keep you warm in the coming winter.  We’ll just have to see what happens when the snow flies.

14 thoughts on “Summer’s End

  1. You have a fair assessment here.

    …From Reuter Sept 19 ’12
    Merkel took the eurozone close to the brink earlier this year by blocking proposals for European governments to jointly guarantee government borrowing and bank deposits. But she calmed markets in recent weeks by dropping her opposition to the European Central Bank buying the debt of vulnerable southern European governments to lower borrowing costs, provided those nations agree to reform their economies.

    “What we’re now saying is that if you’re drowning, we’ll throw you a lifebelt but we’ll only pull you out of the water if you start to make visible swimming movements,” said Michael Naumann, a former SPD minister, publisher and editor.

    • Thanks. That is one funny assessment of Europe. It’s worth saying again – Merkel was hardline on everything until it looked like Germany was in trouble. Politicians are about the same everywhere! 🙂

  2. Everything is drifting. It is like summer vacation and you get back and everything is about the same. Seems like most people are OK with this but there is a lot more than can and should be done. Good blog.

    • Thanks. The complacency with the pace of the restructuring seems very strange to me. People do seem to accept this more and more, which is good in a way – it’s probably what we see in that rather high consumer confidence number. But we still have no sense of urgency when it comes to the fundamental problems.

  3. It does seem like nothing is happening. You didn’t mention Bernanke, the one person who does things. He is the reason that there is more faith in the US than anyone else right now.

    • Yes, we can credit Bernanke. I have been a bit critical of QE3, largely because it’s so open-ended. I also do not understand how it is supposed to help when the same methods (buying mortgage backed securities) had limited effect on the economy before. But he is still the one person in the US – and maybe the world – who is on top of this! He is the Manager of the Managed Depression, and he’s not doing a bad job at all. Just wish he had more support – and didn’t have to stray so far from the Fed’s charter!

  4. Erik, I want to ask you, if the depression actually began in 2001 or thereabouts, how does that square with the criticism of Alan Greenspan for loose monetarty policy from 2003-2007 that could have averted the housing asset bubble, credit overextension, and the ensuing credit crisis and great recession.

    I was just perusing an article on the European debt crisin in the summer 2012 edition of Journal of Economic Perspectives. In it, the authors comment that monetary policy in Europe was too loose from 2003-2007. They were thinking as the US was. And real estate prices in Ireland and Spain were going up back then too.

    • As usual, you’ve hit the nail on the head. Why was our monetary policy so loose for so long?
      There was talk of deflation as early as 2002, which is when the famous “Helicopter Ben” comment was made. The policy makers clearly were more worried about that than inflation through the decade. Between Greenspan’s actions a “Deficits don’t matter” I think it is clear that they were managing this Depression the whole time. This implies that the various bubbles (housing being the nastiest) were almost deliberately created.
      The question, to me, is “Can you manage a depression with fiscal and monetary policy alone?” They were clearly doing their best, but the answer appears to be a solid “No!”. And their efforts were being repeated through the developed world the entire time, so it’s not just the US acting alone. The USD carry trade became significant, too, which adds a new wrinkle to globalism as we know it today.
      But yes, I think this was all very deliberate and we were caught on the downside when the bubbles burst. What we see in retrospect was certainly in the back of Greenspan’s mind at the time, but the Fed acted as it did anyway. That they were looking at things in a very different way from everyone else seems to be the only reasonable conclusion, IMHO.

  5. Again in the fed’s defense, the policy is not to include asset price inflation in targeting inflation, only the consumer price index.

    I would add that everyone tended to be a little high on the Euro because of Germany’s parsimonius approach. Without the Euro some of the more risky national strategies would have had an earlier currency devaluation. Europe used to hate those currency speculators. But it is their fault since they have had many, many years to actually merge and they don’t want to do it. If they were smart they would merge into USE right now instead of taking their usual tortuous path to policy.

    • Yes, I agree on all counts. And I don’t want to sound hard on the Fed because what they have done is exactly what we should reasonably expect that they should. The process of exceeding their normal charter has been a long and somewhat torturous one that goes back about 10 years and is an attempt to pull off a small miracle. The results were mixed – what could we expect, in all honesty?
      As for Europe, you are right on. Each nation used to constantly race to the bottom to see who could support employment with the weakest currency around. The Euro killed all that, but so many of them found other ways to continue their profligate ways that were a part of the whole process all the same.
      They should have been in a proper marriage years ago. Instead, they are living together and after a nasty fight thinking about upping their commitment with a joint checking account. It’s not enough – they aren’t committed to making it work. They still want to be able to walk if the fight gets really nasty.

  6. Pingback: Party on the Jobs Report! | Barataria – The work of Erik Hare

  7. Pingback: Job Loss Hits a Milestone | Barataria - The work of Erik Hare

Like this Post? Hate it? Tell us!

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s