A Huge Herd of Snails

$789 billion (35% in tax cuts). Maybe $2.5 billion with the financial bailout (including older TARP) money all rolled in. 3.5 to 4 million new and saved jobs! We should be home free and coasting on the golden honey road! Right?

Fact – the stock market is the first of the leading indicators; rising employment is one of the last. The stock market trades on news and expectations, but unemployment statistics and housing prices are set by actual market conditions. So until a company has sufficient confidence that they call sell additional products or services to consumers, they are unlikely to add new employees, and when they do add new employees, it is very likely to be a gradual, test-the-market-as-you-go growth strategy. And would you buy a house today if you thought it might drop significantly in value over the next few months? What would you need to see happen in the housing marketplace before you would believe that the bottom has been reached? Something like a couple of months of house-price stability?

Fact – the American Recovery and Reinvestment Plan will pump very little cash into the system in calendar 2009; most of it will roll out in 2010-11 and maybe even beyond. We are likely to see job loss to continue for many months to come and see a selective job stabilization moving from market sector to market sector. New home construction will come very late in the game, probably not in 2009. Housing prices will continue to decline for the next few months, since increasing unemployment tends to generate increasing foreclosures which depress real estate values.

As Treasury continues to experiment with rebuilding the financial markets, with guarantees that the existing toxic and depressed assets will not further deteriorate – and boy would I like to see some specifics here – unfreezing the credit markets will most certainly help both the housing and job markets. If we unfreeze credit relatively soon. But with dire predictions of as many as 1,000 more bank failures, clearly this process is also likely to take some time.

In the end, this is an experiment. We really do not know if this set of stimulus packages will actually work. We’ve seen “bridge to nowhere” infrastructure stimulus packages fail to revive a failing economy ( Japan in the 1990s), and most Americans (individuals and businesses) really don’t trust much of anything or anybody anymore. Can we turn around that essential trust factor any time soon if the results of this stimulus package are not more immediate?

Do Americans really have the patience to wait, as many lose their jobs (and hope) and their homes in the coming months? Barack Obama has been in office less than a month, and people are already blaming him for a slow “recovery.” Since the President himself has set the number of jobs his plan will save or create as one of the major benchmarks of his program, isn’t the fact that stemming job loss is one of the last events to occur in ending a recession (in fact, job loss has continued even after past recessions were declared to have passed!) necessarily setting a course for Obama’s plan to be labeled a failure for a very long time?

It is difficult to ask Americans, even those in other nations whose economies are impacted by what happens here, to be patient and let the process work. But we have to be patient, very, very patient, and let the process work… if it does. There don’t seem to be any good alternatives.

I’m Peter Dekom, and I approve this message.