Europe’s financial follies echoed by US shell game

Commentary: What job numbers don't say about the economy

Optimism about the U.S. economy has actually crowded Europe off-screen from time to time this week.

The center of U.S. happy-talk: an abrupt decline in new filings for unemployment insurance. Stuck near 400,000 each week for 18 months, last week’s figure dropped to 366,000.

As in all things economic, changes in trend are more important than absolute numbers, and it will take awhile to verify this one. If accurate and durable, fewer layoffs is a good thing, but it does not necessarily mean there is some hiring going on — rather, it may be a matter of running out of people to lay off.

Optimists point for confirmation to the National Federal of Independent Business small-business survey — its overall index has risen four months running. However, it’s a hair weaker than a year ago and statistically unchanged since the post-pit summer of 2009.

The employment subindex is slightly in positive ground for the first time since 2007. Maybe it’s a turn, or maybe overcut small businesses have enough confidence in stability to staff an empty slot, but it’s no rocket. The subindex of sales has weakened steadily since April.

One of the best overall indicators is federal tax receipts, cutting though analytical fog and spin: Federal receipts last month were $13 billion ahead of last year. Ain’t nobody payin’ taxes on income they didn’t really get.

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Inflation is a nonproblem, with the consumer price index flat in November, and as the rest of the world slows, inflation is more likely to be a too-low problem than too high. Industrial production slipped 0.2 percent after a strong month.

Wizards of forecasting think U.S. gross domestic product will have grown 3.5 percent this month, and we’ll see. It feels more like a number than a sidewalk reality.

Europe: Mainstream media last week trumpeted German Chancellor Angela Merkel’s great success in gaining agreement for pan-European fiscal enforcement, and pilloried United Kingdom Prime Minister David Cameron for his "no thanks."

Bullied by Merkel, and with French President Nicolas Sarkozy in her lap snapping at passersby, several of the others gave polite "yes" without any agreement at all. European banks are imploding again. Desperate efforts at fiscal discipline to support sovereign bonds are undercutting economies and tax revenue, hurting European bonds by other means.

The fear-effect here: Treasury this week auctioned masses of 10- and 30-year bonds, and bidders oversubscribed 3.5-to-1, two-thirds from overseas. The 10-year Treasury note today is 1.84 percent, last so low on Oct. 1, unfortunately with no follow-through to mortgages stuck above 4 percent. That absence of mortgage buyers is yet another signal that financial markets here are still deeply impaired.

Lest European governments get all the credit for mangling the public interest, consider the newest adventure here, transcending dysfunction: The president took time out from his pre-campaign snit to demand an extension to the payroll tax cut, and even this free-spender insisted that new revenue would be found to "pay" for the cut. Predictably, Republicans wanted to cut spending in alternate "payment."

No serious person thinks the extension, even if not paid for, would do anything for the economy except to waste another couple of hundred billion bucks. However, the "pay for" mania, no matter how done, will convert the whole exercise into cutting a foot off of one end of a blanket and sewing it on the other end.

Except … none of the "pay-fors" propose replacing the revenue lost to Social Security — a high cost to pay for political posturing.

And except … I’m not sure that it will pass, but there has been bipartisan support to pay for part of the payroll cut with a Fannie-Freddie mortgage surcharge, adding a tax on the weakest component of the U.S. economy in the form of higher rates.

Meanwhile, of course, the Federal Reserve’s ”Operation Twist" is trying to push down mortgage rates, and at any crack in economic optimism the Fed will deploy "QE3," a third round of quantitative easing, focused on mortgages.

Few people expect much from government now, except two minority parties each content in its corner to glare at the other. Finding agreement only in the idiocy of a mortgage surcharge transcends black comedy.

If we get some action out of the "Ghost of Christmas Present" this year, I hope it’s to awaken and embolden the political center.

Maybe, maybe … fingers crossed.

Industrial production gains are flattening.

As commodities unwind with Europe and emerging-nation exporters to Europe, inflation will head back down to the reactivate-quantitative easing.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.

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