Don't stop believin'.
Shouldn't that be Alan Greenspan's theme song? Or, at least, that's what recent comments by the former Federal Reserve chief/economic god suggest.
In an interview with Bloomberg, Greenspan made the startling recommendation that, thanks to the stock market's recent rebound, we don't need any more government stimulus money. The reasoning: The Standard & Poor's 500 Index increased 64 percent since March. And that has plopped $5.4 trillion into stocks and boosted retail sales 1.3 percent.
He is quoted as saying: "The stimulus is only a third spent, and its order of magnitude is not large enough to compare with the strength and power of the remarkable global equity increase that's occurred since early March." And also, "Capital gains have proved a far greater stimulus than one can attribute to the $787 billion program that has been only partially spent."
So, his conclusion is that we don't need more stimulus spending because the market will help corporate profits, make banks more willing to lend, and boost household wealth, consequently spurring more consumer spending.
This from the man whose Ayn Rand colored policies helped create the housing bubble and subsequent bust, and who has actually admitted to having dropped the ball.
The only way you can buy this argument is if you think the economy is the same thing as the stock market. But that line of thinking is part of what's landed us in this mess. An economy that's based on financial maneuvering and consumer spending simply isn't tenable. To repeat: is not tenable. In fact, it's based on funny money. If we're going to escape the bubble bust trap, we need a real, functioning economy, real, functioning industry--and real, functioning jobs.
And with the unemployment rate at 10 percent, that's hardly the sign that we're out of the woods.
If you don't think the stock market is the same thing as the economy, then our current situation looks a lot more precarious. And the need for continued stimulus spending becomes urgent. In fact, Paul Krugman and other like-minded economists have been screaming for months--since the first stimulus bill was passed--that the money wasn't nearly enough to address the massive job loss we were likely to see.
In fact, what we need is the exact opposite of what the learned Greenspan is suggesting.
But that doesn't matter to Al. Mr. Bubble just can't stop believin', I guess.