WASHINGTON – The worst part of the economic “new normal” created by the massive central banks interventions is that we have lost any sense of reality when it comes to evaluating actual economic performance.
In America these days mediocre passes as good
In America we have employment growth. And this is good. But we are barely at pre-recession levels. And this is in part due to the usually ignored fact that millions of people have left the job market, and so they are no longer counted as unemployed. Besides, there are too many low-paying part time jobs for people who seek full time occupations. Overall, the economy, while growing, is performing well below the 3% post war average. And yet most business publications tell us that all is well, and so investors keep buying shares.
Indeed, the US stock market is booming; even though there is almost no correlation between stocks high valuations and actual economic performance. But nobody says anything about this obvious disconnect. Nobody points out this absurdity. How do you explain that? Have financial analysts and business writers lost their minds?
Solid growth in Europe?
In Europe the overall economic picture is a lot worse. But now, according to Reuters, there is a true ray of hope. A recent headline reads “Eurozone set to report solid growth, for a change”, May 10, 2015).
“Solid growth”? Well, this looks really good. And what do the Reuters editors mean by “solid growth”? They mean 0.5%. Yes, half a percentage point these days passes for solid growth. And the article has words for praise even for Italy. What do you know, even Italy joined the solid growth pack. It looks that this Mediterranean sleeping giant is finally waking up. It posted 0.2% in the last quarter. Now this settles it. With Italy pushing up the average with its impressive 0.2% growth, no wonder that the Eurozone is doing so well.
We lost any sense of reality
Look, I appreciate optimism and the attempt to focus on even modest good news. Certainly 0.5% growth is better than no growth. But, in the old days, 2% or 3% was solid growth. In this crazy era, dominated by the valuation distortions engineered by central banks, dismal passes for tolerable, and barely OK is actually good.
Financial magic will take care of all issues
The unpleasant truth is that Europe is in decline, while America is flirting with this trend now prevailing among most mature industrial democracies, from Spain to Japan. But practically nobody says a word. No alarm bells.
“Hey, all is well in the Eurozone. Do not be a pessimist. Look: we have 0.5% growth”. But what about the 11% Eurozone unemployment rate? And what about the dismal jobs prospects for young people? What about gigantic levels of national debt? “No problem, super wizard Mario Draghi, ECB Maestro, took care of it with QE. That simple. Now just relax, and enjoy the good times.”