Paul Vigna of Dow Jones MarketTalk is fast becoming one of my favorite market commentators. I did a post on his “The Pinocchio Recovery” and his latest, on the same theme, is solid as well:
We have not yet rebuilt our economic engine, but that isn’t stopping some people from looking down the road.
There’s a lot of talk of revival and V-shaped recoveries these days. But so far, the only thing holding up the economy is still government support, and I have not yet heard one good explanation of what’s going to come along to replace Uncle Sam’s helping hand.
Essentially, the economy is like a car without an engine, and the government is driving the tow truck. What is going to drive consumer demand, which will drive inventory rebuilding, which will drive hiring and wages, which will drive consumer demand again?
It is very important to understand that the government’s gone far beyond what it usually does to combat recession. Trillions have been thrown into the economy in an all-out effort to stop the slide into depression and restore consumer spending patterns. Bailout schemes that involve hundreds of billions of (borrowed) taxpayer monies have become routine.
At some point, some thing in the private sector is going to have to replace those government supports. It hasn’t come along yet, but a lot of people aren’t waiting for it to appear.
Anybody who thinks government spending somehow can create a self-sustaining recovery should look very closely at the cash-for-clunkers program. The boys down in Washington decided to juice auto sales (not a bad idea in itself, seeing as We the People own two auto companies) by offering a $4,500 rebate on new-car sales. It worked like a charm – until it ended. Auto sales are now trending below the levels they were seeing before the program started.
– “A Car Without An Engine”, Paul Vigna, Dow Jones MarketTalk, September 30