Recently Chairman Ben said he was seeing "green shoots" in the US economy. I immediately thought of Lynne Truss's wonderful book "Eats, Shoots & Leaves" and, thus, the title for today's post.
To wit, for several weeks now my thesis on the global economy has been as follows:
- (a) Markets would stage a significant bounce on the back of massive monetary intervention to rescue the financial sector and preventing a repeat of the banking collapse that led to the Great Depression. This has already happened; the S&P 500 index is now up 30% from the bottom reached a bit over a month ago. More significantly, the BKX index of US banks is up 102%.
- b) By indirectly pointing back to markets, politicians and opinion makers would steer popular opinion towards the view that the worst is over and that a recovery is coming soon. This process is under way right now. I am already observing subtle changes in the language used by media: e.g. economic "downturn" instead of "crisis".
- c) But the real economy is no longer driven by finance. The borrow-spend-inflate Permagrowth model has been bankrupted and can no longer function as the fat "tail" that wags the rest of the "dog", the real economy where jobs and earned incomes are generated. In fact, we can say that America has killed its vital manufacturing dog and is now left with just a stumpy, trampled-upon finance tail. Within just ten years we have lost 5 million manufacturing jobs, a scary 30% of the total.
- d) This means that unless the administration immediately, radically and massively re-focuses its attention on creating a Sustainable real economy, the rally in stocks will soon fizzle and the green shoots will be revealed to be nothing more than the figments of the market's forward-looking imagination. This shift in focus is, unfortunately, NOT happening yet.
- e) Putting it another way, we need to create a whole new "green" dog and we need to do it right away. The finance tail should be heavily groomed, cleaned, shortened and regulated before it is allowed to attach itself to this new dog. Green New Deal is an excellent report on the origins of the triple debt, climate and resource crises and what may be done to overcome them.
I will close by recommending a very relevant book: Herman Daly's "Beyond Growth - The Economics of Sustainable Development" is a densely written and densely argued treatise. Published in 1996, no one can accuse its author for being a Green/Sustainability parvenu; the arguments are all the more relevant today. Read it.
The International Swaps and Derivatives Association (ISDA) just announced the results of its semi-annual survey; at the end of 2008 CDS notional amounts outstanding have dropped significantly to "just" $38.6 trillion.