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business newsOur Two-Hump Ski Jump Economy
By
Peter Atwater
Jul 12, 2011 10:00 am
What the US economy needs is jobs, and until prices support incremental private sector investment in the US, we're all on a very slippery slope headed downhill.
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And then came Jackson Hole, and the announcement of QE2 and what I thought was going to be a continued downhill slide, which became a high-octane rally in financial and commodity assets.
But what the rally of the past 11 months did not bring was jobs. Worse, it brought high food and energy prices to an already frail middle- and lower-class American consumer. But what I suspect economic historians will really focus on in time is the social divide that our two-hump, asymmetric recovery created.
As the chart below from Stephanie Pomboy of Macromavens shows, not only did the average American not experience the second hump of the ski jump recovery, they didn’t experience the first, either.
For the average American it has been downhill for the last 11 years.
The problem that I see today for both fiscal and monetary policymakers is that the second hump of the ski jump recovery is now ending. We’ve whipped the Pushmi-Pullyu strategies (see Effects of the Economy's Bad Timing) employed against prior recessions about as hard as we can, and as a result I am afraid that policymakers have morphed into, well, Dr. I-Can-Do-Very-Little-At-This-Point. Further monetary easing is likely to only cause high energy and food prices to rise further, and fiscal austerity -- not generosity -- is what Washington is now focused on due to our own sovereign debt challenges.
And then there is housing. As I offered earlier this spring in A Post-Crash Realty Reality: Home as Shelter, there is little quantitative easing can or will do to stop the socionomic migration of housing as an investment and a cornerstone of upward mobility in America to homes as simply shelter. Like the aftermath of all bubbles, once a “Big Truth” becomes a “Big Lie," demand evaporates.
With the economy now once again at the end of the ski jump and policy makers handcuffed in terms of fiscal and monetary options, I suspect that they will turn their attention away from efforts to jump-start the economy to efforts to slow the economy’s descent from here. And in that regard I would not underestimate the amount and creativity of “financial repression” to be used, as policymakers repeatedly try to put a parachute on the backs of financial assets and housing and cinderblocks on the feet of commodities.
What the US economy needs is jobs, and until prices support incremental private sector investment in the United States, I am afraid that we are all on a very slippery slope headed downhill.
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