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By Ronald Fink
Forget the decline in initial jobless claims we're seeing. Companies are still shedding workers and will continue to do so until they're confident consumers will buy again. And they won't until their incomes rise. Yet that takes job growth, hence our conundrum.
Banks to the rescue? Fat chance: They're increasing provisions for loan losses to come. And the only question is if they're doing so aggressively enough.
That's why everyone's playing for time. The latest evidence: Wells Fargo's decision to allow thousands of holders of option adjustable-rate mortgages to swap them for interest-only deals for six to 10 years. Such deals are the retail equivalent of what banks are doing with heavily leveraged private equity portfolio companies through high-yield refinancing. And it says a lot that the industry term for this is "extend and pretend."
Yes, Congress is extending unemployment benefits and the home-buying tax credit, but those efforts amount to the same wishful strategy, and in the case of the credit, a waste of taxpayer money and bad policy to boot. (Why encourage more debt-based homeownership in light of the mortgage crisis?)
The Treasury evidently believes we're on the right track, or it wouldn't be trying so hard to convince the naysayers.
And the Obama administration insists we don't need a second stimulus program because there's money still in the pipeline from the first program for infrastructure improvement and the like. But every Keynesian worthy of the name contends the package was too small to begin with. It seems to me Obama is bowing to political opposition here rather than economic reality. He evidently feels he's in no position to overcome opposition from the Republicans to serious public investment.
But should we heed their concerns about expanding the deficit? Health-care reform with a public option would do more than anything to hold that down in the long term, which is where any serious inflationary pressure lies. So the Republicans' arguments on stimulus spending, health care and the deficit are incoherent.
True, Obama talked up how the government was encouraging green energy investments the other day, but it's going to take a lot more of that to create a significant number of good jobs. (Sorry, anti-New Dealers, but the wages paid on those public works jobs were no less real than those paid by those in the private sector, to the extent the latter existed.)
Also, the president is heading to China to talk about our trade deficit. As Simon Johnson points out Obama's got some leverage there, and he ought to use it, however diplomatically, to help U.S. exports of manufactured goods. But it's just as important to restrain Wall Street to get that done, since the growing dominance of the financial services industry is undermining our ability to produce such goods. (The financially driven phenomenon known as off-shoring is good for the economy? Please explain in 25 words or less how that cannot be translated as "trickle-down economics.")
Maybe the administration's advisers are right, and the policies already in place or motion will somehow add up to enough to get the economy back on a sustainable growth path. I seriously doubt it. And so does much of the rest of the nation. At minimum, the president needs to do a better job of explaining where he's heading.
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