To begin with I’d like to cite some excellent digging that zerohedge.com has done with published Treasury data that indicate an awareness on the part of the administration that the income distribution is indeed hosed and the best way, ceteris paribus, to cure what ails us is to channel more money to those without:
Treasury Flooded Consumers With Money In December, Just In Time To Unleash Holiday Shopping "Animal Spirits"
My preference would be for a livable dole for the unemployed based on workfare but getting that through the obstructionists (Republicans, in this term) in Congress is apparently not possible. The administration doesn’t know how to attack the root causes of our problems, or doesn’t feel strong enough to do it, but they know how to print money and throw it at problems (kind of like chimps throwing something else at attackers…).
As Simon Johnson has commented recently, “We now have a system that is completely based on moral hazard.”
Unemployment in December remained constant at 10.0 percent on a fall in the labor force that pushed the participation rate to it lowest level in five years. The U-6 unemployment of all unemployed and involutarily employed part-time and discouraged workers rose to 17.3 percent.
So what will happen to “animal spirits”? They will continue to rise as forecast, sluggishly, as Americans adapt to the current situation, to peak about late 2012, to be followed by another deflationary collapse as all the bad debt the government refuses to deal with implodes on the economy, and we crash from the ultimate debt-financed binge at the end of the age, so to speak.
Here is the big picture on “animal spirits”:
And for good measure, a close-up:
I have assumed the the track of unemployment, after a little more on the upside, will track the slope of previous recent declines in the business cycle “expansion” (I put expansion in quotes because only the top few percentiles of the income distribution have participated in the past several expansions).
The increase in “animal spirits” or general confidence levels is mirrored in a decline in other financial market based measures of risk aversion, namely the Baa-Aaa spread that shows the degree of risk aversion in the corporate bond market. We made a great call on the topping of this spread early in the year that has some ways to run:
From a social psychology point of view the problem is that we’re entering another false dawn, kind of like “morning in America,” where the federal debt binge really got started, by the way, and since, as mentioned, our leaders are doing nothing to right the fundamental wrongs, we’re headed for another collapse similar to the last one. The politicians can be counted on to do absolutely nothing unless hit over the head by economic conditions, and disenchantment with the current administration may lead to a gridlocked Congress.
America will enter an eerie calm over the next couple of years. The rich will pretend that everything is all right and go with their lives as usual. The middle class will lay in their beds at night wondering if they will be next, as they watch friends and neighbors grind into destitution and depression with long-term job loss, loss of house, loss of any shred of middle class socioeconomic status. It will be an America profoundly divided beneath the surface, not by political lines, but by what are effectively entitlements bestowed upon the “haves” by a system that (except for some hidden indications, like the anomalous Treasury spending noted above, and perhaps by the tax increase on the rich that is allegedly part of the health insurance expansion bill) increasingly turns a blind eye to the those at the bottom of the socioeconomic heap.
America is not becoming a banana republic, a hollowed-out state. It is one. The ruling junta is the Greed Party, also known as the the Money Party. The postwar American social contract based on shared sacrifice and working together is broken, and must be restored.