Recovery on the Horizon?

Sometimes we might be better off if this globalized world of instant communication were less global and less instant. This week we benefited, if that is the right word, from simultaneous news from London, England; Sun Valley, Idaho; Washington, D.C.; and L'Aquila, Italy. Integrating all of this information is no small feat.

The Bank of England led the parade with an announcement that despite the continued shrinkage of the UK economy, it has no intention of expanding its program of quantitative easing, known to laymen as printing money. That might, but only might, mean that Bank Governor Mervyn King thinks that so long as the British government continues to borrow and spend, with no end to deficits in sight, the Bank had best not throw more gas on the fire by printing still more money. Alternatively, it might mean that King thinks the worst is over.

If the latter, he is on all fours with the International Monetary Fund's report from Washington, but is in disagreement with the news leaked out of the Sun Valley gathering of media moguls.

The IMF now says that the world is coming out of its recession. "The recovery is coming," announced Oliver Blanchard, the IMF's chief economist. China and India will lead the way with strong growth, Japan will rebound, and the U.S. will contribute with a slow recovery. But two cheers only: the global recovery is likely to be more tortoise than hare.

Or a dead parrot. News from the Sun Valley, Idaho meeting was about as grim as it can get. Ken Chennault, CEO of American Express, told reporters, "It is way too early to say that we're in an economic recovery." More important, a news leak from the generally secretive gathering reports that the attendees agreed that the stock market is over-priced. Since these folks should have a pretty good idea of future earnings, and have no reason to talk down share prices, the ivory-tower cheer of the IMF's economists has to be weighed against the gloom of executives in the trenches.

Which might explain why President Obama is adjudicating a dispute among his advisers. Some worry with Mervyn King that deficits have gone higher than can be sustained, others argue that a further stimulus is needed, even if more red ink is spilled.

The Obama team now regrets predicting that the $787 billion stimulus package the president pushed through Congress would cause the unemployment rate to peak at around 8 percent, instead of the current 9.5 percent, and rising. But only 11 percent of the $308 billion allocated to infrastructure will be spent by the end of this fiscal year on September 30, and only half by the end of fiscal 2010. The so-called "shovel ready" projects turn out to have been in rather an earlier stage of development than the administration believed, and some states are using stimulus money to fill gaps created by their own spending cuts.

Which some in the administration are arguing is a reason to do nothing until the stimulus money hits the streets. Among other things, they are nervous that the rising tide of red ink will trigger inflation, a flight from the dollar by China -- which continues to call for an alternative to the dollar as an international reserve currency -- and others who hold trillions in American IOUs, and a recovery-stifling rise in interest rates. Not to mention increase voters' fears that they are leaving an enormous pile of debt for their children and grandchildren to pay off.

Economists among those advising the president to double down are convinced that we were lulled into premature euphoria by the so-called green shoots, which seem to have withered, and that the original stimulus was too small to turn the unemployment rate around. They see delinquency rates rising on consumer loans and prime mortgages, consumer confidence fading, doubt that the plan to get toxic assets off the banks' books will work, and read reports that house prices won't recover for at least two years. All in all, say these economists, the economy needs another shot in the arm. Now. To which Obama's political advisers, their eyes on the November 2010 congressional elections, add an "amen".