PIMCO’s Bill Gross calls the U.S. economy the “least dirty shirt.” To borrow from a Flight of the Concords song, you might say that the U.S. is The Most Beautiful Girl in the Room. By virtue of every other economy in the room looking worse and worse, the United States is looking better and better.
European economies are struggling with austerity measures and will for months and years ahead. A Greek crisis has turned into an EU sovereign debt crisis, which threatens the very existence of the monetary union. Japan is stuck in deflationary territory.
By comparison, it appears the U.S. has played its cards right. We implemented a massive fiscal stimulus package and poured money from the Federal Reserve into the global economy. But, these measures look temporary and unsustainable. Policy to boost consumption was based on the flawed assumption that households would be able to resume consumption once the recession ended. But, the reality of the post-bubble economy is that Americans without jobs who have lost home equity and access to credit may have to permanently change behavior. A recovery in financial assets has helped repair the balance sheets of those at the high end and Wall Street banks, but has left the vast American middle dependent on government income support.
Tune in in about an hour as Steve Clemons moderates a discussion with Simon Johnson, author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown and Robert Kuttner, author of A Presidency in Peril. I would bet these authors have something to say on the “least dirty shirt” thesis. We may be the least dirty shirt today, but there is no telling that we are not sowing the seeds of the next financial crisis or relying too heavily on a recovery in financial assets at the expense of job creation and sustainable growth.
— Samuel Sherraden