Humbug Economics

Christmas is the magical time of year that brings hope, good cheer, and a Santa Claus stock market rally to gladden the hearts of man in the dead of winter. Here at The Central Standard Times we typically bring gloom and doom, and despite the season and our best intentions we must do so again.

Don’t blame us, but rather Christine Lagarde, the fearsome-looking Frenchwoman who is managing director of the International Monetary Fund. During our routine perusing of the Maldivian press we recently encountered this story about Lagarde’s stop in Lagos, Nigeria, where she told an audience of government officials that “Currently the world economy stands at a very dangerous juncture.”

Lagarde, who took over the distinguished and august IMF after its previous managing director was accused of rape by a hotel maid, is in an excellent position to know. The IMF was formed in 1945 by the world’s most prosperous economies to bail out the occasional third-world basket case done in by the insane economic policies that are sometimes pursued by the sorts of people you find in those sorts of places, but now finds itself devoting its relatively meager resources to bailing out the likes of Greece, Spain, and Italy. While Lagarde was carefully vague in commenting on that unhappy situation, saying that European leaders “have made some very strong decisions” but that “it’s going to boil down to implementation,” her agency spoke more explicitly this week when it revised its forecast for global economic growth downward.

The “strong decisions” that Lagarde mentioned have lately cheered American investors, who added more than 300 points to the Dow Jones Industrial Average on Tuesday after the latest miracle cure was announced in Europe, but those with more memory than hope will recall several similar rallies over the past months that dissipated as markets realized the big plan was boiling down in the implementation. Europe’s problem is more debt than it can create, borrow or print, and that won’t be solved until it overhauls the beloved welfare state that has amassed the debt, a process we expect will be completed right around the time rioters are burning down the last of the continent.

The Nigerian officials were no doubt unsurprised to hear Lagarde say that Europe’s pain will also be felt elsewhere. One likely sore spot will be Asia, which makes many of the things those Europeans have been borrowing to buy, and where several countries have already revised their own economic forecasts in the familiar downward direction. The jolt will only exacerbate other problems in the East, of which there are many.

When listening to the more enthusiastic admirers of China’s authoritarian one-party rule one gets the impression that its visionary efficiency is about to dominate the world so thoroughly that there is no option left for Americans but Mandarin classes and Mao jackets, but even that mighty economic engine has lately shown signs of sputtering. In addition to an American-style property bubble, much of the country still mired in cave-dwelling poverty, and painful inflation rates, China now faces the problem of watching the customers it has been selling to on credit go broke.

The irrationally optimistic and the die-hard Obama supporters, two groups that largely overlap, will insist that downturns on the two continents that matter most won’t affect events here. Happy days are here again, we’re told by giddy reporters, with unemployment nudging under 9 percent and building activity stirring anew. We take a dimmer view, noting that the unemployment rate would be worse than 11 percent if not for the large number of ex-workers who have given up the search, and the recent revelation that the bleak housing numbers of the past several years were just as wildly overstated. There’s also the matter of America’s $15 trillion or so in debt, a daunting figure when one considers that America is by far the largest contributor to Lagarde’s effort to bail the world out of debt.

Ebenezer Scrooge himself would have been hard-pressed to compose a bleaker Christmas greeting than this, and for that we apologize, but we reiterate that it’s all Christine Lagarde’s fault. We’ll be back tomorrow with something more in keeping with the season, and urge that you put all of this out of mind in the meantime.

— Bud Norman

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