A commenter on an American Spectator post earlier today made a weird statement:
The economy, boosted by falling energy prices, a weak Euro, and record low interest rates and tons of liquidity is finally showing signs of life.
Excuse me, but “record low interest rates and tons of liquidity” isn’t good news. The Fed is pumping currency in a desperate effort to revive a comatose economy. This policy is inflationary, but prices are still flat because the economy is so weak — with the official unemployment rate at 9.9 percent and 23 percent of mortgages “underwater” — that even five straight quarters of a near-zero Fed rate isn’t enough to jump-start consumer demand. And the Fed can only pursue this policy because the U.S. government is on a phenomenal spree of deficit spending.
Are “falling energy prices” good news? No, just a side-effect of the weak economy, which means lower demand for oil. And the “weak Euro” is also bad news, because it will hurt U.S. exports to Europe.
After a one-day upward bounce Friday, the Dow Jones Industrial Average lost 126 points Monday, closing at 10,066. Here’s Business Week:
U.S. stocks fell, dragging the Dow Jones Industrial Average to its lowest level in three months, as the seizure of a Spanish bank and rising borrowing costs spurred concern Europe’s debt crisis will halt the global recovery.
And here’s The Washington Post:
“If what happened in Greece were to happen in a large country, it could fundamentally mark our times,” Angelos Pangratis, head of the European Union delegation to the United States, said Friday after a panel discussion on the crisis in Greece sponsored by the Greater Washington Board of Trade. . . .
The most vulnerable European countries — Greece, Spain, Portugal and Ireland — may represent only about 4 percent of world economic activity, but “the debt crisis and its ripple effects are bad news for all corners of the world,” said Cornell University economist Eswar Prasad.
The risk of a worst-case scenario is still considered remote. . . .
However “remote” the risk may be, we ought to remember that in 2006 almost no one expected the collapse of the U.S. housing market which hit freefall in 2008. And even if the “worst-case scenario” doesn’t happen, how bad would the “kinda bad scenario” have to be, in order to kick us into another three or four years of recession?
The economy sucks, and it’s likely to start sucking even worse — possibly much worse — before the year is over.
UPDATE 9:10 a.m. ET Tuesday: As a commenter points out, European markets dropped more than 3% overnight, and Dow futures are down about 2% before the opening bell. It’s likely the DJIA will close below 10,000 today.
