From The daily reckoning
To hear Alan Greenspan tell the tale, the U.S. economy inhabits a kind of macro-economic Eden - a paradise so blessed that investors need not possess any knowledge of good or evil. Even seemingly diabolical iniquities, like a $500 billion dollar trade deficit and a plummeting dollar, are of no consequence to the inhabitants of this paradise.
Sure, America runs a massive current account deficit, but observe that no harm comes to her as a result. Sure, it would be prudent to trim the federal deficit, but why wring our hands over such minor foibles? And sure the dollar's value is plunging faster than Satan into the fiery abyss, but this phenomenon is actually a good thing, which will impart even greater blessings to this economy of ours.
So far, says the chairman, the "gradual" decline in the value of the dollar has been helpful in easing the current account deficit. "No material adverse side effects have been visible in U.S. capital markets," he coos seductively.
In short, Greenspan's mellifluous message is to fear no evil... All is well.
Comstock Partners begs to differ with the chairman's assessment. "We still believe," Comstock scowls, "that the economic recovery is not sustainable, as the monetary and fiscal authorities are very close to having used up all their ammunition with no results in the all-important labor sector and consumers up to their eyeballs in debt... In addition to the lack of wage growth, few hirings and a plunge in REFIS, the economy is faced with record consumer debt, a low savings rate and record consumer bankruptcies at a time when further stimulus from fiscal and monetary policy are not possible.
"In the absence of further means of easing," Comstock concludes, "the Fed is trying to use highly nuanced wording to tell us that the economy is strong... while at the same time trying to keep the fall in the dollar somewhat stable. The Fed knows the economy is not self-sustaining, so is trying to keep the stock and real estate markets pumped up in order to give consumers the illusion of paper wealth in the absence of jobs and income. In our view this is a house
of cards that is doomed to come tumbling down."
OK, so maybe this house of cards won't come tumbling down... But neither will it grow to the sky. Such fantasies only exist in the Eden imagined by Alan Greenspan. |
