Government Stimulus;Supporting the Economy With Hot Air

The Washington Business Journal posted a piece today entitled "Survey: Landscape work increasing"; the purpose of which (by our account) was to spin the American Society of Landscape Architects recent survey in a positive light. The survey basically consists of asking participants - in this case 507 landscape architecture firms - to respond to a series of questions related to the most recent quarter's billable hours, new work inquiries and hiring tendencies. Additionally - and further evidence that the Government's rescue schemes have pervaded every just about every aspect of business - the past few ASLA surveys have included questions pertaining to the "stimulus funds", and whether those monies had managed to trickle their way into the participants line of work. As evidenced by the title of the Business Journal piece, the survey did show a reported increase in business activity; predictably non-emphasized by the story though, was the fact that all of the uptick can be attributed to stimulus funds. Based on the survey, the percentage of respondents that indicated billable hours for the quarter to be normal (generally defined by the survey as "right where they usually are") or better increased by 6.8%, compared to Q1. The survey also revealed that the percentage of firms that reported having benefited from "stimulus funds" increased by 6.5% in Q2 v Q1. Clearly, the only growth occurring right now is entirely stimulus related; it is also meager.

Some critics might respond that, well, "business is business", so who really cares where it comes from? Besides, the government is simply simulating demand until the private sector can "recover". We would retort that such an argument ignores the point altogether, and would seem to indicate a certain obliviousness to a certain reality: the United States has been operating beyond it's actual capacity for several years now; it's illusory growth being the product of massive debt agglomeration that grew industries beyond what any real fundamentals are capable of supporting.

The Government, through it's stimulus efforts, is merely blowing hot air into a balloon. The trouble is, that balloon has a leak in it. Once the air pressure abates, the balloon will continue to deflate; until such point that it reaches a size that can be independently supported.

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Geithner's Quandary

Treasury Secretary Timothy Geithner has managed to create the most ridiculous quagmire of uncertainty that we have ever seen. None of this should really be a surprise however, given that he was exposed as a tax cheat and accused our largest creditor of manipulating its currency-all prior to his confirmation by the Senate. The main issue facing Mr. Geithner at present however, is how to prevent the complete stratification of the United States Banking System into a midieval caste system, where a well-capitalized nobility siphons increasingly greater resources from an insolvent peasantry.

To date, several smaller banks have returned their "bailout" money to the Treasury, thanking Mr. Geithner on the way out the door. Recently however, the calls have been growing louder from a select few of the Nation's largest financial institutions that they be allowed to prepay this onerous "loan". These initial requests have been met by Treasury with a certain amount of trepidation, as allowing the prepayments to occur would immediately create a de facto Bank Peasantry. The problem is, as time goes by, one can easily listen to the words of any given Bank Executive and discern, to some general degree, the overall health of that Bank. As the executives of the truly healthy insitutions continue to be angered by the useless interest payments that their Banks must remit to the Federal Government, their public statements have become definitive, proud, and bordering upon boastful. From the weak institutions however, silence is the Modus Operandi.

The question for Mr. Geithner then is "How do I stop this?". Unfortunately, this process can not be stopped. The Market has decided that, if Mr. Geithner's choice is inaction and lack of disclosure, it will discern for itself who are the fittest of the group. We are in the midst of a deleveraging process that can not be stopped by any amount of Government interference or balance sheet realignment. The question is rather how long the entire process will take, and how acutely the pain will be felt at any given moment in time. It appears that the Federal Government has chosen the path of a lost decade, albeit one without intense pain.

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