The Campaign Spot

I Wonder If Obama Will Cite Kudlow to Combat Krugman

In a reversal of strange new respect, Paul Krugman is saying the economy is not in turnaround.  Meanwhile, on CNBC, I’m watching Larry Kudlow cheer the “many signs” we are in turnaround, particularly pointing to the banks. I love the guy, but I can’t help but wonder if Larry’s inherently cheery, sunny, Reaganesque optimism is blinding him to some signs that the you-know-what isn’t finished hitting the fan . . .

BANKS: Of course the banks are feeling great; the Geithner toxic-asset plan provides about a trillion through the FDIC to private-equity firms to overpay for those subprime mortgage derivatives. Win-win for banks and private-equity firms; lose-lose for the taxpayer.
Beyond that, we’re told all of the banks are expected to pass the “stress tests.” Really? Nineteen out of 19 are hunky-dory? Worst economic crisis since the Depression and not one major bank was deemed undercapitalized for a scenario considerably worse than the Obama economic projections? Wasn’t it last fall we were being told that if the bailout didn’t pass, we were going to wake up in a Mad Max film?
Oh, by the way, Car Czar Stephen Rattner told J. P. Morgan, Citigroup, Morgan Stanley, and Goldman Sachs they were going to have to take a $7 billion hit on the Chrysler-Fiat deal. If that scenario comes to pass, think that might affect the balance sheets of those banks?
HOUSING: I’m sure some markets will show signs of recovery soon, but housing prices won’t be coming back for a long while in a lot of places. The housing bubble burst in 2006 or so, we’re two years into a housing slump, and the number of foreclosures in a single month actually hit a record a month ago. Housing starts are awful (as they should be — who’s building homes during a time of intense overcapacity?) and shouldn’t be good for a while.
EMPLOYMENT: Jen Rubin notes why it will be rough for a while, maybe through 2010. The Congressional Budget Office says it should stink through 2011. I just wonder if when it hits 10 percent, whether that has a big psychological impact, and people hunker down even further.
This month’s big layoffs: Boeing, Yahoo, Hallmark Cards, Chicago steelmakers . . .
THE MARKETS: My liberal readers are saying, “Hey, why no stock market updates? It’s going up, so give Obama credit.” As of yesterday, it was up 176 points from Obama’s inauguration. We’re still 1500 below what it was on Election Day 2008.
Before this is through, we’re going to see more companies disappear — media companies, probably Chrysler, luxury brands. Men’s Health is folding BestLife. Several big-name companies have been delisted from stock exchanges or are in danger of it – Six Flags, Borders Books, bankrupt mall operator General Growth Properties . . .
GDP NUMBERS: The first-quarter GDP number is expected to show a loss around 6 percent, which was the revised number for what was lost in 2008’s fourth quarter. Of course, judging by the unemployment numbers, etc., it’s not unthinkable that the three most recent months were worse than the three preceding ones; watch the revision later this year. (Also, as GDP shrinks, the threshold for “6 percent” gets smaller, so an equal loss amount would be a larger percentage this quarter.) GDP should stink this year (good luck meeting the Obama administration’s projected loss of only 1.2 percent) and the deficit will be, in all likelihood, significantly worse than Obama’s projections.
And then, a couple years down the road, the income-tax hikes kick in . . .

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