Niall Ferguson opens his latest Newsweek column with the suggestion that the recent blast of spring — “a bit of blossom on the trees” — has caused people to lose their minds, declare the American economy in recovery mode, and predict a second presidential term for Barack Obama.
Ferguson takes a different view.
Remember what caused the financial crisis? That’s right, it started with a crash in the overleveraged housing market. Well, last week Zillow (the online real-estate guys) predicted that home prices will fall by another 3.7 percent this year.
How’s that deleveraging process coming along? Slowly, according to McKinsey. Between 2000 and 2008 total private and public debt in the U.S. rose by 75 percent of gross domestic product. Since the crisis struck, it’s come down by just 16 percent.
What about those too-big-to-fail banks that nearly blew the world up? As Dallas Federal Reserve President Richard Fisher recently reminded us, the five largest banks still own more than half the assets in the banking system.
Meanwhile, the unintended consequence of global monetary expansion at a time of growing Asian consumption and Middle Eastern instability is rising oil prices. Are you ready for the $4 gallon, folks? At this rate, the price of gas is going to regain its pre-crisis peak before the stock market does. Unfortunately, rising gas prices act like a tax on consumers.
Speaking of taxes, let’s not forget that Washington is still miles from fixing the chronic hole in the nation’s public finances. Paul Ryan’s radically reforming budget passed the House, but you know it won’t get through the Senate. The president thinks that demonizing Ryan is the way to stay in the White House—he mixed up quite a metaphor cocktail last week by calling his budget both a “Trojan horse” and an example of “social Darwinism.” But Obama’s cynical decision to scupper a deal on the deficit last year has set the nation on course for crass across-the-board spending cuts (code name “sequestration”) next year.