Flickr image courtesy of lamoney.
Today’s report of job gains in March has the usual suspects overheated and long-term rates rising a little. Picking up 216,000 new jobs is good news, but New York Federal Reserve President Bill Dudley’s reference to recovery as "tenuous" is dead on the mark.
There is a deeper and authentic good-news thread. Beginning circa 1990 the rise of China and the rest of the emerging world began to undercut American labor. We still have a painfully steady 8.4 million people working part-time who cannot find full-time work.
We are adding new jobs, but wages are flat — not growing at all. People coming out of unemployment must often take jobs paying less than their old ones.
That adjustment has been under way for 20 years, masked by stock and housing bubbles. However, this is not a life sentence: progress is hard to measure, and we will not identify the end point until after we have passed it.
However, I think we have the first authentic signs of nearing conclusion: the Institute for Supply Management surveys of manufacturing are coming in at some of the highest levels ever measured (61.2 for March).
This performance transcends any pipeline-filling of overdrawn inventories, and cannot be explained by a pop in car sales — we have begun again to compete.
This progress has been bought by the sacrifice of American labor, and protected by heroics at the Fed. However, further progress is impeded by self-inflicted injury.
There’s no better date than today to explore foolishness. (Today, in fact, is the 23rd anniversary of this column — to be celebrated with appropriate impertinence!)
Self-inflicted wounding comes in a variety of forms. First the intentional, straightforward, Darwin Award affair. Then the accidental: the extra in "Braveheart" who repeatedly stands in the wrong spots until … Last, the truly inventive: While trying to settle a score in a long and bitter feud, you are hoist on your own petard.
Housing markets rolled over early in 2006, prices falling in many places ever since, now passing below pre-bubble levels. In wound-type No. 1, the entire government reaction has been attempts to deal with the effects of falling prices, instead of considering means to make them stop falling and then rise.
Thus, they have pretended to mitigate the unmitigable. They remain in foggy surprise that people who owe more than their homes are worth will abandon them, or that lenders foreclose on people who stop paying. And in post-concussion confusion cannot grasp that most people will not invest in things that are falling in price.
The "Braveheart" extras insist that the bubble-causing mortgage credit excesses must be stopped. Explain to them, over and over, that they have stopped, dead-ending three years ago … uh-uh.
If they find any credit of any kind, they’ll try to stop that, instead. Remind them: Bear, Lehman, Countrywide, all gone and the markets behind them, you couldn’t find a subprime loan with both hands and a mirror … uh-uh.
Their relentless creed: "No more bad loans. And if that means no loans, then we have succeeded. No new loans, no new foreclosures!"
Try to tell them that, if they have their way, prices will continue down and all loans will fail. Their eyes will grow ever-closer together, blank. A leader: the Federal Deposit Insurance Corp.’s Sheila Bair, a modern Joan of Arc setting alight her own stake and pyre.
Petard: a primitive grenade, often as harmful to the grenadier as the target (also old French for "fart"; to be hoist by one’s own is a 500-year-old double joke).
In 1935, the Fed, through Regulation Q, awarded savings and loans banks a 0.25 percent deposit-paying advantage over banks in exchange for their dedication to savings accounts (passbook only, no checks until 1978) and mortgage lending. Commercial bankers despised them, and finally got even via their "club-mate," former Federal Reserve Chairman Paul A. Volcker, at the mere cost to taxpayers of $400 billion.
They didn’t care for Fannie, either. Today, Freddie … tomorrow the world! While they’re at it, is it time to get even with those quick-thinking, adaptable brokers? Kill all mortgage securities? Consumers need discipline! Rigid is good! Slow is good! Make the world safe for bureaucrats!
Say, fellas … current mortgages outstanding amount to more money than all your bank loans. When you kill off all your ancient mortgage enemies, you do intend to make the loans, right? Right? You know how, and have the capital and all …