Why stability won't breed stability for this economy

Many folks more intelligent than I have commented that markets appear to be stabilizing. This statement is fatally overbroad, of course, and so it leads to lots of great debates.



Some things have gotten better, some are stabilizing, and some are getting much worse. For example of something getting better, look at the credit markets. One could make a very convincing argument that the worst in the credit markets is behind us. It's doubtful that the TED spread is going back to four, and the A2/P2 spread damned well nearly seems reasonable.

Some things are stabilizing. For example, home sales are stabilizing. They're stabilizing at 50-year lows, but they're stabilizing nonetheless.

Then there are certain things that are getting worse. Commercial real estate is blowing up and unemployment is still growing, albeit at what might be a slightly decelerating rate. But if you don't have a job and can't find one, it's hard to find solace in a decelerating rate of unemployment growth.

The big question is what to make of it all. My opinion is strongly contrary to what appears to be popular consensus now, which is that the slowing down of deterioration is an encouraging sign. In most economies that would be true. But this economy needs more than stability. Our highly levered, highly indebted society needs much more than stability to dig itself out of this mess. The West needs growth and plenty of it, or the entire system is going down, in some ugly form or another. Pensions have been designed on the expectation of 8% annualized growth, and they're not getting it. State budgets rely and significant annual growth, and they're getting the opposite. Banking structures also require growth in housing, car loan, and credit card receipts, and they're not getting any of it.

The US economy is a bicycle that needs to accelerate faster for eternity to stay on its wheels. That's an absurd analogy for an absurd situation. And neither is sustainable.