Everytime you hear the optimists speak about a turn in the economy being just around the corner, you hear of things like the tax rebate checks, or some statistic trying to show that housing isn’t as bad as it really is, or the fact that unemployment and GDP growth aren’t as bad as they could be.
But the truth is that you still have to ask a few basic questions.
There are several strands to the market’s optimism about an early V-shaped economic recovery. Among these is the fact that, while certainly not good, the various US macroeconomic indicators, like GDP growth and employment, for the first quarter of the year were not nearly as bad as the Cassandras had led us to fear.
Valid as these arguments might be, they totally overlook the fact that the US economy is still being adversely impacted by the very same three negative shocks that caused the US economy to go into a funk in the first place. Worse still, it would appear that at least some of these adverse shocks are now intensifying.
What are those three negative shocks?
Are US house prices at the national level now not declining at an accelerating pace in a manner that has no precedent in the past seventy years?
Have not international oil prices dramatically risen to around US $125 a barrel, or approximately double the level that they were a year ago, thereby more than offsetting the US government’s tax rebate program?
And is the US financial system not still in the throes of what Paul Volcker has referred to as the “mother of all credit crises”, as vividly illustrated by the Federal Reserve’s recent still very gloomy survey of bank lending intentions?