Wheels of stimulus spinning in place

Flickr photo by roy.susan.

Believers in "V"-shaped recovery gave it up this week, as did many hoping for any near-term recovery at all. The 10-year T-note broke cleanly through its post-May 3.28 percent low, taking mortgages below 5 percent, also for the first time since spring.

The manner in which the bond market cascaded said more than the fact. There was no new, single-piece, trend-changing report, just the cumulative weight of news describing an end to the May-July bright interval, and the beginning of an economic flattening or outright stall sometime in August.

Further, rates broke down before the biggest news of any month (payrolls), and in advance of next week's Treasury auction of another $71 billion in long-term paper.

Today's payroll losses were half-again worse than expected, down 263,000 and canceling any improving trend. Sectors you'd think had bottomed have not (construction employment is still free-falling at a 12.6 percent annual pace).

Ones you'd hope would hold have not (government jobs fell 53,000 on state and local budget cuts); and the one sector showing growth merely exposed foolish excess (health care added another 19,000 jobs in September, positive 559,000 since the recession began).

If we are stalling, the administration's and Fed's all-according-to-plan position will be indefensible, and demands for new stimulus will rise. Paul Krugman and the "silly-left" aside, few have the stomach for more congressional borrowing and random cash-hosing.

We need to get out of the policy box, and we have examples of alternate strategy in Europe and China and forgotten lessons from our own past.

First, the problem: Credit shortage has strangled recovery; households are in bunkers under collapsed net worth, and not coming out until home values are safe.

We speak in the U.S. of a delicate Fed: pump-priming, fine-tuning or jump-starting. Adding to metaphor stew, think of this Great Recession as a snow drift we must drive through. At the turn of the year, China gunned the car and simply blasted through, while we stayed on standard plan, control paramount, fussing about overdoing. ...CONTINUED

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