Be INFORMED

Sunday, March 22, 2009

Does Geithner Know What He’s Doing?

  A few people seem to think that maybe he does and that maybe his plan is already working, to some extent.

DKos

Geithner's plans may be already working

by rweba
Sun Mar 22, 2009

In the last few days I have seen a lot of negative reaction to the President's economic policies. Some people are asserting almost as a FACT that these policies will not work. Well I think it is wrong to present OPINIONS as FACTS, because the reality is no one knows for sure what plan is going to work. Geithner and Summers and Romer are all experienced economists and smart people, they put together a plan that is politically feasible and that they think is the best option right now. Obviously not everyone agrees, but I have not seen any evidence that the alternatives are guaranteed to work (or politically feasible).

I think there are a few different reasons for the dissatisfaction:

(1) Everyone is on edge because of the economy so there is a certain base line pessimism.

(2) Some people don't seem to have confidence in Summers or Geithner. I believe this is unjustified. Geithner's first really major initiative is only going to be unveilled next week. The results won't be seen for a while (probably six months or so). So this is like losing faith in a quarter back before he even plays his first game. Summers hasn't even been in the news. No scandals, no news, yet some people seem absolutely convinced that he is a failure and must go. Huh?

(3) It sounds like there are a lot of people who are economic radicals/economic populists who want Obama to announce some kind of whole sale over haul of the entire economic system, especially if such an overhaul targets the wealthy/CEOs. Problem: I don't think there is any clear picture of exactly what such an overhaul would involve. It is even less clear picture of how such a program would work politically.

An additional problem with the "doom and gloom" perspective is that the state of the economy is to a large degree a self fulfilling prophecy. If everyone believes that we are doomed, and acts as if we're doomed - then yes indeed we'll be doomed. But if people are optimistic about their future, they'll go out and make plans, banks will lend credit to people, stores will have good sales and things will get better for everyone. So the problem with spreading a "sky is falling" meme is that we may be literally shooting our economy in the face. And that could hurt real families and make people lose their jobs.

With that said, here is some recent good news on the economy that indicates the economy may be improving.

(1)  A surprising 22% surge in February housing starts to a seasonally adjusted annual rate of 583,000 units.

(2) A back-to-back jump in retail sales ex autos, in both January and February.

(3) A return to profitability at several major banks, including Citigroup, Bank of America and JPMorgan.

(4) A doubling in the obscure but important Baltic Dry Index, a key indicator of global trade flows.

(5) An upwardly sloping yield curve, which Fed research suggests all but ensures a rebound by year-end. (link)

(6) A Housing Affordability Index that has hit an all-time high.

(7) A two-month improvement in wholesale used-car prices, measured by the Manheim Index. (link)

(8) A rise in Monster’s Employment Index in February, suggesting a turn in the job market may be around the corner.

(9) A sharp increase in the money supply, as measured by M2 and M1. Weekly M2 growth has averaged 10.1% year-over-year since the start of 2009, while M1 has grown at a 14.6% rate. link

(10) A two-month rally in the Index of Leading Indicators.

(11) Airline traffic is better than expected.(link)

(12) Consumer confidence is ticking up. (link)

SOURCES: source1source2source3

MORE: blog1 blog2

And you could probably find a lot more stuff out there.

My point is, it seems there are SOME reasons to be optimistic. I am not saying a recovery has definitely started, but I wouldn't be surprised if unemployment started dropping by the fourth quarter (of course it might take longer). And not to say the doom and gloom perspective is COMPLETELY wrong, but it's also good to have another perspective. The truth probably lies somewhere in the middle.

And I do think to a certain extent people are responding to Obama's announced policies. They know that there is a 870 billion stimulus bill that was passed with record speed. They know that they are getting a tax cut starting April 1. They know that they are getting help on their mortgages. And they know that the government (and the entire G-20) have got the financial systems back and are not going to allow a financial sector meltdown. Basically they see that they are some smart people who are on the ball and more than prepared to act boldy to stave off disaster. And this is what gives people CONFIDENCE that everything is going to be all right in the end. And this is the sense in which I mean Geithner's plans may be already working.   

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