John McDonald

Blogging about politics, life, and the web

Not the Economic Recovery most were Hoping for

May 30th, 2009

Our leaders are infinitely optimistic about economic issues – and they should be, since the modern economy is mostly a confidence game.

We’ve moved well past fundamentals into an economic world driven by faith – not a faith in raw numbers or sustainable economic systems – but a faith in the authority of the experts who specialize in snuffing out panic and public doubts.

In the last week, bond markets have shifted around radically. Despite Federal Reserve efforts to keep interest rates low, investors are demanding higher returns on “safe” investments like U.S. government debt. With so much debt hitting the markets at the same time investors are seeing their existing capital deflate, it almost surprises me that the offerings would sell at all – at any rate of return.

For the mortgage market, the creep up of rates could lead to extra complications when adjustable loans reset. And even without rising rates, the option-payment ARMs will lead us down another path of defaults and unwinding of leveraged investments based on questionable bubble-era mortgage pricing.

Trust me – I don’t want to be pessimistic! I would love to see hosting sales return to 2008 levels. It seems like despite how many new coupons and discounts I offer, the sales just can’t keep up any more. There’s even some indication that college enrollment has slowed down or even stopped growing – fewer students are signing up for scholarship & financial aid services, even when adjusted to seasonal slowdowns that accompany summer semesters.

For some banks with access to near-zero government loans, the recovery might be as real as the price increases in commodities over the last few months. As long as the value of those dollars continues to fall, they’ll continue to turn out a profit at the expense of generally higher costs. Wages stink and employment is still falling – and sure, unemployment is a lagging indicator, so we’re only seeing the effect of the last wave of mortgage failures and bank defaults. The next one is still brewing – inevitably on the horizon.




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