When do we know the worst is over?

The April jobs report: Not so bad. The price of oil: Down just a bit. The credit crunch: Subsiding?

By Andrew Leonard
May 2, 2008 6:36PM (UTC)
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How the World Works has earned a reputation for being relentlessly gloomy about the economy, a stance that served this blog well as the economy actually did go into the tank. But we must always be open to the possibility that things are not as bad as they seem, and a seemingly severe downturn might magically become a mere mild bump in the road.

In that spirit, I present three optimistic takes on recent financial events, which will be recorded here for posterity, so that in later months we can either return to mock them mercilessly, or nod sagely, and say, this is where the tide turned.


1)The April jobs report. The U.S. economy lost only 20,000 jobs in April, compared to 80,000 in March and 76,000 in February. One could point out that this is the fourth straight month of job losses, further cementing George Bush's record for worst job-creating president in modern times, or one could, a la the Wall Street Journal, surmise that "the economy may be starting to find its footing after several months of stagnation." Investors were certainly cheered -- the Dow Jones industrial average jumped 100 points in early trading.

2)The divergence of the price of oil and gold. Let's hand the megaphone over to the resolutely right-wing blog Dinocrat:

Since early April, gold and oil have moved in opposite directions. Gold's price, in our view, has retreated as the market has judged, correctly, that the dollar's decline is nearing an end for multiple sound reasons (a halt to interest rate cuts, global slow growth or recession, etc.). Meanwhile, oil's price has become completely untethered from reality in an insane speculative frenzy, even versus other commodities (which have had their own bull markets).

It's over, or at least coming to an end, in our opinion. The fundamentals do not support current oil prices, as industry veterans say, and that situation is ever more glaringly evident each day, as economies weaken in the West (and it's likely to get significantly worse in the BRIC countries than anyone now anticipates). Of course, we may be wrong about this -- but the last man who bought an insanely expensive tulip bulb, or an internet stock in March 2000, thought that the price would go yet higher. Peaks are only understood in retrospect.

3)The credit crunch. <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aZGKVAF.Xjeg&refer=homeA growing chorus of financial bigwigs are claiming that, at the very least, we are closer to the end of the crisis than the beginning. Yesterday, the Bank of England declared the worst was over. From The Telegraph:


According to the Bank of England, so pessimistic has the financial community become that it has overcompensated for the trouble ahead. Sure, the economy is in for a rough ride over the next couple of years but -- compared with the current negative outlook -- the prospects are positively rosy. That, at least, was the message from the Bank in its Financial Stability Report.

In the words of deputy governor Sir John Gieve: "While there remain downside risks, the most likely path is that confidence and risk appetite will return gradually in the coming months."

How the World Works is skeptical that the credit crunch's worst days are behind us, believes the longterm pressures on the price of oil have not altered one whit, and suspects that the continuing problems in the housing market will continue to pummel the employment picture for months to come. But who knows?

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Globalization Great Recession How The World Works U.s. Economy