Everybody struggles now to find guideposts in the thicket of new economic information. Two old ideas may help:

  • First, the time-sense of humanity is more calibrated to getting the bear out of the cave than musing about why bears like caves.
  • Second, a version of frog in hot water — we tend not to notice the gradual onset of lunacy, grasping the insanity only in retrospect.

U.S. data are pretty good — relative to fears of new recession. November payrolls gained 120,000 jobs, and inclusive of all revisions added that many to prior months. If markets had any idea in September that payrolls had jumped by 210,000, double the original announcement, we would not have had that mortgage refinance party.

Reality break: the Treasury borrows and spends about $120 billion each month, and for that stimulus we get 120,000 jobs. Instead, why not just pay each of these people a million bucks and let them stay home? Europe is struggling with austerity, not us. Yet.

Markets liked the rise in the November Institute for Supply Management manufacturing index from 50.8 to 52.7 (50 marks a break-even economy). A major part of that improvement is coming from much better sales of cars, at a 13.6 million annual pace in November. That’s way up from the barely 9 million in 2009.

A retro-perspective: we junk about 14 million cars each year. They wear out, unlike houses. Thus, we are just now touching replacement-rate sales. Credit is restored for car buyers, unlike houses, which require rather larger loans and are harder to repossess (state attorneys general have discovered that it’s cheap to buy votes by stopping foreclosures). Oh, by the way, the ISM manufacturing index fell to 49 in China, and down to 46 in Europe.

The strength in the stock market is a great thing; the Dow Jones Industrial Average topping 12,000 in new statements will reassure households. Fine, disciplined money managers, as opposed to some of the commentators on CNBC, point to solid corporate earnings miles above the return on bonds. Some stocks pay dividends beating bond yields.

Fluff, huff and puff … Wednesday’s 500-point-up day was the direct result of global central banks’ rescue of European banks. It was a run that began on European banks 18 months ago, and intensified in July, including huge dollar deposits fleeing home — out of Europe — for safety. The European Central Bank can replace euros running, but needed other central banks to replenish dollars. The good-news intervention that caught so many short stocks was actually confirmation of very bad news.

Everyone is exhausted with the Euro-soap opera and its fantastic display of self-deception, but it is more important than any other economic development. The next can-kick is scheduled for Dec. 9, this time fiscal discipline will be enforced by surrender of sovereign budget authority to European Union bureaucrats in Brussels. Once that discipline is established, the International Monetary Fund and ECB are supposed to ride to the rescue (joined, presumably, by the "Mounties," "Mighty Mouse," and "Batman.")

Better to kick an anvil than this can. The central purpose of any parliament since the Magna Carta, since Rome, is the power of the purse. In the best lunacy check of the week, French President Nicolas Sarkozy declares, "It is not by going down the path of more supranationality that Europe will be relaunched." Aha. France refuses external fiscal discipline not merely for its immense pride, but because its own situation is so dire that it cannot meet the requirements of the existing treaty. If France refuses, who would accept?

Germany’s unemployment has fallen to a two-decade low of 5.5 percent. Spain’s is 22 percent. There is no rational basis for these nations to bolt themselves to a common currency. One of these nations needs a much stronger currency, and the painful lesson of the cost of beggar-thy-neighbor export mania; and the other nation desperately needs to devalue to revive exports.

The greatest hazard lies in continuing this charade. The most helpful and hopeful line of the week came from Jurgen Hoffman, finance director at Volkswagen Autoeuropa: "The overall impact (of leaving the euro) would not be so negative for our company." The primary impediment to ending the euro fantasy now seems to be politicians trying to preserve themselves; the commercial world is more than ready.

Thanks to www.calculatedriskblog.com for this most-descriptive chart:

And for the next one, "involuntary part-time." There are 8.5 million people going nowhere:

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