From a small northwestern observatory…

It’s hard NOT to be pleased at today’s economic news.  The unemployment rate is down, total employment is up (the two numbers don’t ALWAYS move in sync, due to the growth in the potential workforce), the stock market is up, the dollar is up versus the Euro, Yen, and Pound (not always a good thing), and bond yields are up (reflecting a potential demand for borrowing — a very “old school” view of stocks versus bonds).  Intriguingly, oil is up but only by $0.59 a barrel as of this writing (12:35am EST on Friday the 3rd)  — one would normally expect that great economic news would spur a run on oil.

Which may, in fact, reflect the continued anxiety in the marketplace.  Recessions rarely happen in a straight line (see my post a few weeks ago on the relationship between the yield curve and the onset of a recession — click here for a shortcut).  Real estate continues to be in disarray, and the banking sector is still in rehab, with the continued concern of a relapse if the Euro crisis doesn’t solve itself.

Ben Bernake’s testimony before the House Budget Committee this week was painful to watch  — members of Congress would prefer to listen to themselves rather than the Chair of the Fed, and it was clear that members of that august committee had only a cursory understanding of what the FED actually DOES.  Nonetheless, a piece of Bernake’s testimony had the tone of Armageddon.  He noted that we’re on our way to addressing the CURRENT problems — the huge deficit overhang, the Euro crisis, etc.  Congress still has ample work to do in those areas, but we are at least confronting the issues.  The larger problem, in his mind, is what start happening in about 10 years or so when the demographic overhang starts hitting.  The rapid shrinkage in the number of people PAYING into social security and medicare versus the number of people COLLECTING these transfer payments will be substantial, and this doesn’t even begin to address the productivity problems associated with a society in which a substantial number of people are retired and not contributing to the nation’s output.

Sigh…. at least it looks great today, right?