News not Greek
It is hard at the moment not to be mesmerized by the melt down of the Euro. One moment we are told a major position has been established. The next, what was impregnable crumbles to dust in the face of inexorable economic and financial logic. As I see it default is both inevitable and desirable. Inevitable because the burden of debt on top of horribly ill-conceived austerity measures is creating a social backlash that cannot be resisted. Desirable because it would give space to the Greek economy within which much needed reforms can take place without undermining civil society. Desirable also because creditors need to be disciplined just as much as debtors: they need to be reminded that lending is a risky game, and that losses are a natural part of the process of banking. Both buyer and seller need to beware. Stuff happens, and money may not get paid back.
Meanwhile in news not Greek:
The US economy meanders along in it well established stagnant rut.
This week you may not have noticed the news amidst all that Greek drama – on a personal note, my late father-in-law was Greek and grew up in the town of Drama, so he would have enjoyed the current dramatics on a decidedly personal level. Here’s a brief summary of this week’s action:
The Chicago index of industrial activity slipped from 60.4% to 58.4% this month. This supports the general notion that things are not accelerating, but that they are still not collapsing either.
On a slightly more worrying note, the Institute of Supply Management’s measure of manufacturing edged down also, to 50.8% in October from 51.6% in September. Neither of these readings is particularly strong – a reading of over 50% indicates more companies are expanding than contracting. Obviously if we slip any further we should all be concerned that we are seeing the beginnings of a more broad contraction. That October result is perilously close to the borderline. So this index bears watching over the next few months.
Worrying too was the drop in construction spending, which has hardly been robust of late anyway. The latest figures are for September when construction eked out only a 0.2% gain. August had seen a 1.6% gain, so things have slowed down a bit, from rotten to really rotten. This decline didn’t make the headlines, however, because most forecasts had been for an even worse result, and weather may have distorted things too. Still, there is no sign of an incipient boom anywhere to be found. The meander continues.
Lastly, and to support the prognosis of stagnation, today’s ADP report on private payrolls is nothing to write home about. The private sector added 110,000 jobs in October. This is neither good, nor atrocious. It is down slightly from September’s 116,000, but not significantly enough to worry about.
All of this sideways motion contributed into the Fed’s decision to stand pat on monetary policy. The two day Federal Open Markets Committee meeting concluded this morning with a rather tepid press release. At this point I usually launch into a tirade about the Fed’s hawks because they perpetually interpret all this mediocre news as a sign of an imminent burst of growth, sufficient to cause rapid a inflationary spiral. They are thus normally on the side of caution and want to see the Fed start to undo its easing and to tighten things up. How they arrive at this position I have no idea, they seem to be content to ignore the actual evidence and to rely, instead, on fantasy visions and doom laden scenarios in their minds.
But, not today. The only dissenter from the Fed’s current position sees things as more gloomy than me. He wants more easing. This is so unusual I have to bring it to your attention. When even the hawks are quiet, and when the only dissent is on the side of easing, the economy cannot be in the rosiest of shape.
That our hawks are quiet is of little help in global terms. The crazies running the European Central Bank seems intent on being horribly destructive. Those hawks make ours look positively sparrow like. The economists at the ECB qualify for the title of ‘weapons of mass destruction’. Perhaps the US should invade the ECB on that pretext?
Oh. Wait. We used that excuse already.
How did that work out?
