Pick Your (Economic) Metaphor
The real question is, now what? Government interventions are only meant to light a fire under the real economy and unleash what John Maynard Keynes called our “animal spirits.” But government dollars can’t sustain growth.
Like it or not, the stock market is bigger than the Federal Reserve and the U.S. Treasury. The stock market anticipates only future profits and prosperity, not government-funded starter fluid. You can only fool it for so long. Unless there are real corporate profits from sustainable economic growth, the stock market is not going to play along.
–Andy Kessler, “The Bernanke Market“; The Wall Street Journal (7/15/09)
Kessler’s is one of the better takes I’ve seen recently on “where we’re at now” (a rapidly growing genre of Op-Ed pieces lately).
Here’s my, somewhat starker take:
Parachute #1, monetary policy — the Fed’s control of (short-term, wholesale) interest rates — has been fully deployed for quite some time. Once rates are zero, you’re done. (Eventually, so-called “quantitative easing” ignites inflation fears.)
Parachute #2, fiscal policy — also known as government spending — has now been deployed in the form of what I’ll call “TARP, SCHMARP, and GARP” (sorry, lost of track of all the ad hoc acronyms some time ago — maybe that was the point).
The economy’s rate of descent now seems to be slowing.
How far away is the ground? Do we have any more parachutes?
Stay tuned . .
P.S.: if you’re new to all this economic metaphor-stuff, “soft landing” seems to get recycled every 10 years or so.