The end of the end of the Great Recession

It is hard to believe that a man is telling the truth when you know that you would lie if you were in his place. – Mencken

Remember all that robust economic activity we heard so much about last month? The stuff about the economy expanding at 3.5% for the third quarter of this year and “officially” marking an end to the Great Recession? Ooops.

It was only 2.8% according to revised Commerce Department numbers. (And every reporter who is even semi-competent knew this reduction was coming. This number will be revised at least once more.)

That 0.7% difference is big. It means the basis of all this activity was mostly a result of the Federal gov’t running up its credit card and not by the creation of goods and services as a result of non-government created demand. Most of the spending was the result of government subsidies of the housing and auto industries via the Cash For Clunkers program and the $8,000 tax “credit” for 1st time homebuyers. It had been hoped that these would spur ancillary spending and thereby help the economy. This was not the case. People spent only on the things they could get a deal on.

And even that spending was problematic as the FHA seems intent on recreating the subprime insanity that got us into this mess.

Robert Toll, CEO of Toll Brothers, said today at a New York home builders conference that FHA lending could create another huge crisis in the mortgage industry, referring to it as “yesterday’s subprime.” He also went as far as calling it a “definite train wreck,” noting that a “flag will go up in the next couple of months” for bail out money.

It is worth pointing out that Mr. Toll’s money comes from the FHA so he  has a vested interest in NOT saying this.

Nor were individuals the only ones to reign rein in their spending:. Via AP: “Companies cut back spending on commercial construction — a weak spot in the economy — at 15.1% annualized pace. That was deeper than the 9% annualized cut back first estimated.” On the plus side: Corporate profits climbed by the most in five years.

Oh, wait, you mean you aren’t a corporation?

OOOOOPS, again.

Maybe that’s not good news.

The AP story tries so hard to offer both sides of the story that it contradicts itself in places:

For the current quarter, some economists think economic growth will slow to around a 2.5 percent pace, though others say it could reach 3 percent if holiday sales turn out better than expected. [I would like some drug testing done on those “others”.]

Most say they think the economy will weaken again next year, with growth at a pace of around 1 percent as the impact of the $787 billion stimulus package fades and consumers keep tightening their belts under the strain of high unemployment and hard-to-get credit.*

So for some reason consumers are going to shell out in this quarter but then stop. I may have missed it but I don’t think there has been a subsidy for Christmas presents. Unlike some other economists, I think most people know January follows December and behavior that won’t make sense then doesn’t make sense now.

By the way, the professional wishful thinking classes will be out in force for Black Friday so make sure not to believe a single damn thing they say. Reporting false bright numbers about the coming weekend is an annual and longstanding tradition. See: Journalists still too lazy to report truth about Black Friday

Journalists deeply irritated at working over the long weekend writes stories that begin: “Great Black Friday sales numbers mean a big shopping season. Insert somebody’s numbers to support this and then a quote or two from an analyst.” Publish, forget, and hope no one notices that they are ALWAYS — even in good economic times — WRONG.

I don’t know which irritates me more, that we are being lied to so badly or that we are so eager to go along with it.

PS: The FDIC Deposit Insurance fund is now in “Negative Territory” (ie, broke) as the number of bank failures continues to increase.

*The article has a great example of how journalists say what they believe to be true without getting caught at it: “What’s not clear is whether the recovery can continue after government supports are gone. If consumers clam up, the economy could tip back into recession.”

If the Wall Street Journal Is So Smart, How Come They Agree With Me?

Me:

Second, housing starts are at a nine month high! Great, just when a huge amount of housing stock is about to be dumped on the market, aka, more foreclosures.

Them:

Recovery Obstacle: So Many Houses

They have to get better reporters over there.

The whistling at the financial graveyard grows increasingly repetitive

This brilliant post is entirely from the great blog Financial Armageddon

These days, lots of people seem to be reading from the same script:

"CBI Says Worst of British Recession Over" (Reuters)
"China’s Premier Says Economy Better than Expected" (Associated Press)

"Dubai’s Ruler Says the Worst Is Over" (Financial Times)

"U.S. Officials Suggest Worst of Recession Is Over" (Reuters)

"Italy Employers See Signs Worst Over in Crisis" (Reuters)

"Worst Over? Just Maybe" (Associated Press)

"’Worst Is Over; India to Be on Recovery Path in 2-3 Quarters’" (Business Line)

"US Hopes the Worst Is Over" (The National)

Hmmm, those words sound awfully familiar…ah, yes, now I remember:

"Lehman CEO Says Worst Is Over, Yet Troubles Ahead" (Reuters)

"Bear Stearns Says Worst Is Over After Writedown" (CNBC)

"Citigroup Chief Says Worst of Crisis Is Over" (Evening Standard, May 7, 2008)

"Legg Mason’s Miller Sees Recovery for Stocks; ‘Worst Is Behind Us,’ Famed Fund Manager Tells Beleaguered Shareholders" (MarketWatch, April 23, 2008)

"Is the Worst Over for Detroit?" (SmartMoney, July 18, 2005)

Obama takes “loaves and fishes” approach to the economy

Give the man a 2nd Blackberry, because The President-elect is already falling victim to the echo chamber.

Mr. O has “raised the estimate of how many jobs would result from his economic recovery plan, saying it would create or save three million to four million.” Should he pull this off it will  be very close to the 5.5 million jobs created during 12 years of Bush family presidencies.

On the good news front: The US trade deficit has dropped to its lowest level in more than five years.

As drinking buddy Declan McManus once put it, “Don’t you think that I know that walking on the water don’t make me a miracle man.”