Who are we kidding?
Well, the American People, for one thing. We're also kidding Investors and Savers and other Nations and we're certainly kidding our children with these ruinous economic policies that do nothing but cover up the complete failure of our fiscal policies to address what is now an 8-year Global Recession.
Pretending things are better than they really are at a Federal level leads Corporations, in turn, to also pretend things are better than really are – kind of like the Emporer's New Clothes – where no one wants to be thought a fool for simply admitting what is obviously true.
Financial-management maneuvers - some reasonable and some questionable - are being pushed to extremes as executives work to keep up appearances. If you've spent any time following the markets, then you're probably familiar with some of the tactics companies are employing to boost earnings:
- From an operational standpoint, a company may lay off workers while squeezing more productivity out of its existing workforce.
- From a financial-engineering standpoint, a company may buy back shares, reducing the share count and ultimately boosting earnings per share for investors.
- From an accounting standpoint, a CFO may argue that certain costs and expenses were unusual in nature; from this you get a pro forma earnings figure that's higher than earnings defined by generally accepted accounting principles (GAAP).
Say what you want about all that stuff above. That's just how business has been done.
I have long been the fool who says the Emperor has no clothes and, finally, I'm being joined by no less a fool than Barry Eichengreen of Berkeley, who is also calling for a return to REAL Keynesianism (Government Spending) to stimulate the demand side of the equation. Like me, Eichengreen does not think things are all that complicated but like Global Warming, those in power simply refuse to see or admit the inconvenient truth:
The solution is straightforward. It is to fix the problem of deficient demand not by attempting to further loosen monetary conditions, but by boosting public spending. Governments should borrow to invest in research, education, and infrastructure. Currently, such investments cost little, given low interest rates.