Why doesn’t our economy grow faster? We know the answer. A majority of the people surveyed routinely say they believe the country is going in the wrong direction. Business is sitting on hoarded cash now estimated to be more than $1 trillion dollars and growing. Individuals reduced spending and paid down debt as home values stay underwater. Banks are no help. After getting bailed out they are telling consumers to forget about getting loans unless you don’t need it and raising fees like airlines looking for any excuse to stick it to us.
Addressing the problems causing our current economic funk requires that our politicians take actions that are against their own political interests. So in Washington DC we mostly hear speeches but get little action as Congress scores points against the opposing party and the President tries to deny the problem hoping it will go away until after he is re-elected.
We see our glass as half empty and thus fear sipping the water lest it run out.
There were two glimpses of sunshine among the clouds this week. Tim Pawlenty, former Governor of Minnesota and now an announced GOP candidate for president went to Iowa to give a generally upbeat pro-growth stump speech with some specific ideas for getting our economy out of the ditch. Most of the other candidates are spending their time scoring points against President Obama rather than telling us how they would fix the mess.
Meanwhile, Fed Chairman Ben Bernanke got out of DC long enough to address the June 7th meeting of the International Monetary Conference in Atlanta. Speeches by the Fed Chairman are usually so vague as to be meaningless. Bernanke, however, had a few “sound bites” that summarized the current problem pretty well. He said:
“As is often the case, the ability and willingness of households to spend will be an important determinant of the pace at which the economy expands in coming quarters. Increases in household wealth–largely reflecting gains in equity values–and lower debt burdens have also increased consumers’ willingness to spend.
On the negative side, households are facing some significant headwinds, including increases in food and energy prices, declining home values, continued tightness in some credit markets, and still-high unemployment, all of which have taken a toll on consumer confidence.”
When we do—then business will start spending to create jobs, consumers will start spending to buy goods and services and a rising tide will lift all boats as economic activity ripples through the economy. Confidence is the missing ingredient in our strategy today.
What actions can be taken to restore confidence?
One good place to start would be an agreement between Democrats and Republicans on the debt ceiling. Both sides know that there is little alternative but to raise the debt ceiling and assure bond holders that we will not default as a nation on our obligations. The price President Obama is now paying for his hyper-partisan approach to virtually every issue is that Republicans are sweating him to extract the maximum price for doing what they know they must.
An ‘eye for an eye’ political price being demanded by Republicans has been translated into a dollar for dollar cut in spending to match the increase in the debt ceiling. That would not be a bad outcome giving both sides something to take credit for and signaling both a willingness to confront the monsters under the bed and doing so in ways that are enduring not smoke and mirrors.
The other issues affecting confidence have to do with the uncertainty of looming costs for ObamaCare, inflation, new regulations driven by the President’s political agenda, and a generally anti-business, pro-tax and spend philosophy of government that can only be solved with the cathartic 2012 election ahead. It is a long time to wait for an answer to the question, but whether we see our glass as half-empty or half-full makes all the difference in how fast our economy gets back on track.
- Bernanke: Econ Below Potential;Accomdtve Mon Pol Still Needed (forexlive.com)
- Bernanke: Sharp Spending Cuts Could Hurt the Economy (swampland.time.com)
- Obama expresses concern about slowing economy (thegrio.com)
- Obama expresses concern about slowing economy (seattlepi.com)
- Federal Reserve chairman Bernanke says US growth slower than expected (telegraph.co.uk)
- Bernanke pushes back on oil prices (finance.fortune.cnn.com)
- Bernanke Says ‘Uneven’ Recovery Needs Fed Stimulus (businessweek.com)