The Long View 2009-03-13

The Long View 2009-03-13

From the "line go up" point of view of simply looking at stock prices since 2009, it could be easy to forget how much heartache there really was in 2008/2009. Which is a very good reason to take all such assertions, historical or contemporary, under due consideration, as this chart, or even one of home prices, doesn't measure what it was like to be under water on a mortgage and take a huge tax and credit hit of a short sale.

John J. Reilly has unfortunately gotten short shrift recently, but the manuscript for The Perennial Apocalypse is about half re-formatted for re-publication. A new cover will grace the physical version as well.

Atlas Dances

Within any bear market, there will be rallies. If such a rally lasts long enough to convince a substantial number of investors that the bear market is over, it will in retrospect be called a Sucker Rally. The substantial uptick in stocks we saw this week may not last long enough to earn that name. However, we should note that the rally was not entirely without foundation. The general economic news changed, at least for a few news cycles, from bulletins of unprecedented collapse to reports of ordinary unhappiness. Citigroup, JPMorgan, and GM seem unlikely to implode just this instant. Retail sales have at least suspended their freefall. Even in real estate, the fire-sale prices for existing homes are generating some actual sales. The improvisations of the current and former Administrations must be given some credit for these developments, especially the state of the big banks. (I see that Bank of America actually made $5 in the first quarter, 200.)

That these things mark the end of the economic slide or even of the bear market we may reasonably doubt. What struck me about this flurry of optimism, however, is that it occurred without any hint that the Obama Administration planned to relax by even a tittle its schemes for vexatious regulation and confiscatory taxation. This thought occurred to me, of course, because I read a fair amount of conservative commentary, where the designs of the Administration are routinely characterized as the most diseconomic measures since Diocletian’s price controls, and the great Pandora’s Box from which all economic ills since January 20 have come. (I’m reading a book about the fall of the Roman Empire, so Classical allusions are much on my mind.)

There has been, to put it mildly, room for improvement in the performance of the Obama economic team so far. As Megan McArdle observed yesterday:

“Geithner, who is rapidly starting to look like the weakest link, is rattling around by himself in Treasury. Meanwhile, the administration has clearly prioritized a stimulus package that will not work without fixing the banks over, um, fixing the banking system.”

She notes at the end of her piece, however, one of the most dismaying things about the current situation is the response of self-designated conservatives to it:

“It's therefore frankly more than a little disappointing that the free marketers are represented by Grover Norquist, who trots out conservative boilerplate to the effect that we're all going to hell because of EFCA and marginal tax rate increases. Republicans will not fight delusional accounting by demonstrating that they're still tangled up in the Laffer Curve. Growth can still hit 1.2%--or even 3.2%--if EFCA passes. But it manifestly cannot in the middle of an ugly recession.”

The boilerplate critique to which McArdle alludes is largely confined to the conservative commentariat. Except for some investment advisors whose activities probably merit the attention of the SEC, it seems to be of little interest to actual businessmen. The real John Galts of the world, in the sense of the people who conceive commercially viable ideas and who manage commercial enterprises to carry them out, those people most emphatically are not waiting for the government to stand back and let the free market rip; quite opposite. Libertarian measures would have the effect of undermining business confidence. Let me take that a bit further and suggest that a refusal to raise taxes in the present context would undermine business confidence.

* * *

Surely this is the scariest headline to appear in recent days:

China 'worried' about US Treasury holdings

“’Premier Wen Jiabao noted that Beijing is the biggest foreign creditor to the United States and called on Washington to see that its response to the global slowdown does not damage the value of Chinese holdings.

‘We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried,’ Wen said at a news conference following the closing of China's annual legislative session. ‘I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets.’"

These remarks were actually pretty reassuring, but a watershed was crossed simply by the premier’s raising of the issue. A more tepid statement, or even a mistranslation, could do damage to the financial markets that would not necessarily be reversible once it started. A failed treasury auction would be worse.

* * *

Meanwhile, Peggy Noonan sees signs on every hand of a change of ages.

“[T]he economy isn't the only reason for our unease. There's more to it. People sense something slipping away, a world receding... the dread is chronic... The sale of antidepressants and antianxiety drugs is widespread....Gun sales continue up....They are taking cash out of the bank in preparation for a long-haul bad time....I went to the U.S. Mint website the next day [to investigate buying gold coins], but there was a six-week wait due to high demand. (I just went on the Web site again: Production of gold Eagle coins "has been temporarily suspended because of unprecedented demand" for bullion.)...In Manhattan, Catholic church attendance appears to be up.”

One could go on, and she does, at some length. This meditation on the sense of an ending ends with this:

“So where does that leave us? The writer and philosopher Laurens van der Post, in his memoir of his friendship with Carl Jung, said, ‘We live not only our own lives but, whether we know it or not, also the life of our time.’ We are actors in a moment of history, taking part in it, moving it this way or that as we move forward or back. The moment we are living now is a strange one, a disquieting one, a time that seems full of endings.”

Awareness of living in a historical period is not in itself a virtue. Neither is it necessarily evidence of high intelligence. It does, however, turn what would otherwise be a mere environment into a drama. Of those who have this sense, some find it a consolation. Others, emphatically, do not.

Why post old articles?

Who was John J. Reilly?

All of John's posts here

An archive of John's site