Believe those who are seeking the truth. Doubt those who find it. Andre Gide

Tuesday, February 10, 2009

"Shock and Awe" Needed to Combat Recession

See the full article here.

A selected excerpt:

Government leaders will need to take a "shock-and-awe" approach towards the economy as indicators show a worsening recession, Mohamed El-Erian, co-CEO of the Pimco bond fund, said Friday. Asked what he would do if he stood in Treasury Secretary Timothy Geithner's shoes, El-Erian said the government needs to take drastic, immediate and comprehensive action to combat the threats posed by the crumbling economy.

Do people like El-Erian actually think before speaking? Do they think at all? Perhaps not thinking is a luxury that only the very rich can afford?

A leading bond fund manager is asked for his views on how U.S. government policy might be designed to combat what appears to be a worsening recession. How will he answer? One might hope that the experienced sage will draw on the lessons learned from past interventions in the U.S. and elsewhere. Nope. Perhaps he will draw on a few philosophical principles concerning the role of government in the economy. Nope. Perhaps he will frame his views in the context of a coherent economic theory. Yeah, right.

Nosiree...forget all that BS. Instead, for inspiration and as a model of successful intervention, our high-paid fund manager draws on one of the greatest U.S. policy failures of all time -- the "shock and awe" bombing campaign that preceeded the U.S. invasion of Iraq. How's that as an example of "drastic, immediate, and comprehensive" action? And oh boy, that sure turned out well, didn't it?

Thursday, February 5, 2009

Gosh Darnit, Mr. Immelt

Another slow day. But trust General Electric's Chief Executive, Jeff Immelt, to provide us with some entertainment value (as opposed his real job of generating shareholder value). Check out the story here. Here is a quote:

The U.S. economy is in its worst shape since the deep recession of 1974 and 1975, and if it deteriorates further the most meaningful comparisons will be to the Great Depression. We're at least to 1974-75. Once you break through '74-'75, you don't stop 'til you get to 1929. Unlike the other downturns that I've been a part of, this one is faced with limited liquidity. If liquidity exists, it's not coming back readily. That's why the government's role in this cycle is so gosh-darned important.
Jeepers...I had no idea. But gosh-doodly, I suppose this is why he is paid the big bucks.

We're at least to 1974-75? What is he talking about? U.S. real per capita GDP 35 years ago was approximately 50% lower than it is today; see first figure here.

Oh, wait a second...I think he was referring to GE's stock price.



But you see, this is not Immelt's fault. Nosiree. Jack Welch (legendary former CEO of GE 1981-2001) never experienced anything like this. Things are "different" this time around. In particular, there appears to be a shortage of "liquidity;" or a "credit crunch." Nope...I can't recall people ever talking about a phenomenon like this before during an economic downturn. This is why the government's role in this cycle is so gosh-darned important.

And just what, pray tell, might that role be? Well...you know...the government should do something...and it should do it right away...anything really big...anything, I presume, to legitimize the view that things are really different this time around; and that poor share price performance really has nothing to do with poor executive decisions.