Dialectic of Exaggerations
This posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.
Yesterday the Dow Jones average had yet another 400-point day (this time downward), as the TARP program underwent the final step of its spectacular unraveling. Today, it has more than reversed direction, as investors bought into energy shares, of all things. From ad-hoc to one-size fits all and back again, it is clear that the policymakers have no clue not only in coming up with constructive ways to deal with the crisis, but even as to where the chief problems lie.
In this they are not altogether at fault. A perusal of today’s Financial Times indicates several areas that will get in the way of dealing with the clear deflationary trend that is only beginning to exert its full power on simultaneously deleveraging economies (for more on this, see another post of today, of Anatole Kalesky’s Times piece, “It’s an Emergency: Long-Term Cures Must Wait”).
First of all, the TARP program itself: it’s gone from being a means to provide a floor under mortgage debt that would, conceivably anyway, revive a still-essential, if overpriced housing market, to a selective recapitalization (sans voting rights) of banks. But the remit of the recap program has come to potentially include so many firms, financial (non-bank, insurance, credit-card, what have you) and even industrial (auto firms), that the effect has been an unprecedented bloating of the Fed’s balance sheet, and that without loans making it out into the wider economy at all. So it became necessary to shrink the program. Et voila: no more buying-up of distressed assets, which, after all, is what the program was named for (Troubled Assets Relief Program) in the first place. Now, according to the FT‘s Krishna Guha, who spoke with Treasury Secretary Henry Paulson, the administration wants to “leverage the public funds,” by matching companies’ capital infusions from the private sector with taxpayer-supplied funds. The fact such leverage will be taking place amidst a veritable torrent of deleveraging, and in an environment characterized by exceedingly poor consumer demand–and hence profits (unless the government picks up the slack and then some, which will take far more than public leveraging of the few selected winners who might be favored in the current clime)–suggests that the already-dead corpse of the TARP program retains some phantom limbs that still need to be killed off.
On top of the giant contradictions and confusion at the heart of policy, which will no doubt continue to erode investors’–not to mention consumers’–confidence, two other likewise twisted themes deserve mention, both of which featured in strangely juxtaposed stories in today’s FT. First of all, the International Energy Commission’s Nobuo Tanaka said it “would be possible, but very hard” to cut greenhouse emissions such that atmospheric concentrations remain below the critical 450 parts per million threshold (which would be consistent with a rise in global temperatures of an “acceptable” 2 degrees centigrade), and, consequently, that technologies not yet commercially developed would have to be somehow implemented to prevent such a temperature increase. Right next to this (“IEA Warns on Severe Climate Cost of ‘Business as Usual Policy”) story (I can’t find these stories online) was another (“Crash in Oil Exploration Puts World ‘on Bad Path”)on the continuing decline in oil exploration, which has continued despite the recent, unprecedented spike in oil prices, and which will be enhanced by its equally rapid plunge. So, energy costs look set to continue to be a nuisance, especially if energy retains its status as a commodity prone to bouts of intense speculation (especially if its inverse relationship to the US dollar holds up), even if the ultimate aim is to convert to more efficient technologies: for these probably aren’t commercially available yet, and the world economy will need a lot of energy to recover from the economic downturn, which will only exacerbate the environmental degradation, and so on.
For global recovery to be sustainable, global trade will need to revive (though this will also contribute mightily to ecological deterioration), especially given the fact that it, too, is now subject to a credit crunch (the drying up of “letters of credit” financing). But another FT story (“Tax Rebates Raised for Chinese Exporters”) shows that attempts to revive China’s bloated export sector are calling forth protests from trade competitors, just as attempts to stimulate its consumer sector with subsidies did so during the inflationary uptick early this year. No matter how you look at it, and even with the global duel between inflation and deflation settled with a clear victory on the part of the latter, there are enough kinks and remaining complications in key global markets that will hamstring policymakers worldwide, and at every turn, even if the next lot turn out to be a lot more competent, and even responsible, than those who brought us this cataclysmic mess.