Your Daily Economic Cynicism

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Berkeley prof and former Labor Secretary Robert Reich echoes Jim Ridgeway. Both are deeply skeptical about claims that the economy will soon be back on its feet. Here’s Reich:

But we’re not at the beginning of the end. I’m not even sure we’re at the end of the beginning. All of these pieces of upbeat news are connected by one fact: the flood of money the Fed has been releasing into the economy. Of course mortgage rates are declining, mortgage orginations are surging, and people and companies are borrowing more. So much money is sloshing around the economy that its price is bound to drop. And cheap money is bound to induce some borrowing. The real question is whether this means an economic turnaround. The answer is it doesn’t…

Some of the big banks will claim to be profitable, but don’t bank on it. Neither they nor anyone else knows what their assets are really worth. Besides, the big banks are sitting on over $500 billion over taxpayer equity and loans. Who knows how they’re calculating profits? Most importantly, there’s still a yawning gap between the economy’s productive capacity and what it’s now producing, and absolutely nothing will turn the economy around until that gap begins to close.

I don’t have the economic expertise to know if all of this is right, but if my choice is between Reich and Larry Kudlow, who boosted the market right until it fell off a cliff and is starting to boost it again (by saying we’ve already hit bottom, recovery is around the corner, etc.), I know who I’m going to trust.

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