The Economy Is Bipolar: Get Used to It

Just a few months ago, we were gloomy all the time. It was easier that way.

Now we’re enduring frequent mood swings as the economy teases us with recovery, then smacks down our hopes. There was a bout of euphoria when we learned that the economy grew 3.5 percent in the third quarter, the first period in more than a year when GDP didn’t shrink. Growth was greater than expected, even on par with what you’d see in a normal, healthy economy. Yay! Life is good!

Except that life obviously is not good. That economic growth spurt was due to a lot of federal fertilizer, like subsidies for cars and homes and other spending by a government that seems hell-bent on bankruptcy. That spending can’t continue, and without it, growth would have been pretty lame.

At least exports were up, so maybe we should be happy about that. But exports rose mainly because the dollar is weak, and that’s because foreigners don’t want to invest in the United States like they used to. So maybe a rise in exports is really bad news in disguise. I’m not feeling so happy about that after all.

But here’s something that makes me feel better: Big companies have been racking up impressive profits that are much higher than analysts expected. Three cheers for corporate America!

Huh? You mean they’re doing this without selling more stuff or hiring more workers? They’re actually still laying off workers? And that’s why they’re earning more money? Rats. Let’s just make it one cheer, then.

At least investors are optimistic. Look at that stock market! Up 50 percent since it bottomed out in March! That ought to keep going until…. Ahh, I see. So if laid-off workers don’t start finding jobs and spending money, the stock prices of the companies that have laid them off will stop rising and start falling? And investors will turn sour as stocks start to slide all over again? Ahem.

Gee, I’m not sure what to think. And most Americans feel the same way. Consumer confidence plunged from late last year to early this year, as companies capsized, the stock market crashed and pink slips flew like confetti. That made sense. Everybody was gloomy and for good reason: Their moods matched conditions in the real economy.

Confidence improved in April and May, as the bloodletting at companies seemed to subside. Then confidence took a summer hiatus in June and July, as people began to realize this recovery thing might take awhile. Consumers perked up again in August and September, as cash-for-clunkers, falling home prices and the home-buyer tax credit convinced them to try some shopping therapy, which always boosts the spirits. But the buzz wore off in October, and now we’re back to a recession mindset.

People by nature prefer clarity over ambiguity, but we should get used to this bipolar economy, because it’s likely to become a chronic condition. Odds are the strong third-quarter GDP numbers were an anomaly, and future growth will be more of a downer than a stimulant; the Congressional Budget Office, for example, predicts GDP growth will be an anemic 2.9 percent in 2010, with weaker performance at the start of the year than at the end. White House economist Christina Romer said recently that the awful job situation would probably last for another year, without much improvement. And we’re going to have to give up our meds at some point: There’s little appetite for more bailouts or stimulus plans from a benefactor that will need its own bailout before long.

But there will be episodes of euphoria in the near future, too: Moments when the stock market seems poised for another tear, excited rumors about the housing market finally bottoming out, and other signs that we’re tipping into a new era of prosperity. Go ahead, believe it. A counterargument will intrude soon enough.

Disclosure: No positions

Comments

[bob adamson:]

We perceive, think about and describe the world to a remarkable degree in terms of models, stories and metaphors; finding apt ones is key. Your bipolar metaphor, Mr. Newman, is spot on for the current economic situation and the general response to that situation.

Oct 30 01:08 PM

[User 353732:]

The economy is not bipolar it is bi-furcated.
The small part at the top where the elites luxuriate in splendor. They control all the levers of power, resource allocation and mass propaganda. For them these are times of great growth and jubilation. All they survey is under their dominion and they take what they want, when they want and as often as they want.
The large part at the bottom is where ordinary Americans live, where many struggle and are fearful and stressed. For them these are times of compression and distress. They listen for the financial knock in the night from the elites that means more taxes, regulations, transfer payments and humiliations even as disposable income falls, credit becomes scarcer and net worth either stagnates or erodes. For them growth is remote and jubilation a distant memory.

A bi-furcated economy and a bi-furcated nation. The economy of the Occupiers where every prospect pleases and the economy of the Occupied where the sun shines less frequently and the vistas become more barren.

If only it were bi-polar, so polarity could be reversed.

Oct 30 01:34 PM

[ryanclarke:]

To User 353732,

The market will soon correct. The Fed can

Oct 30 02:16 PM

[ryanclarke:]

The market will soon correct. The Fed can only keep the printing machine turned on for so long before gasoline pump prices will enable another economic dislocation ... much as what occurred in the spring/summer of 2008.

Oct 30 02:18 PM

[Stez:]

I love it a lousy 2.9% GDP growth predicted.

Gordon Brown would sell his wife into slavery for that number.

Oct 30 02:23 PM

[bob adamson:]

An interesting point is that once one moves beyond the centre-left and the centre-right mainstream of political and economic thought in the US the analysis that User 353732 gives here is quite common on both the further left and further right. It is the view of the populist outsider and an expression of frustration and anger with the perceived failures of the political and economic process currently; a perception with a real basis of fact.

It is unclear where that analysis leads in a constructive sense but it must be addressed constructively by mainstream thinkers and not simply dismissed.

bob adamson

On Oct 30 01:34 PM User 353732 wrote:

> The economy is not bipolar it is bi-furcated.
> The small part at the top where the elites luxuriate in splendor.
> They control all the levers of power, resource allocation and mass
> propaganda. For them these are times of great growth and jubilation.
> All they survey is under their dominion and they take what they want,
> when they want and as often as they want.
> The large part at the bottom is where ordinary Americans live, where
> many struggle and are fearful and stressed. For them these are times
> of compression and distress. They listen for the financial knock
> in the night from the elites that means more taxes, regulations,
> transfer payments and humiliations even as disposable income falls,
> credit becomes scarcer and net worth either stagnates or erodes.
> For them growth is remote and jubilation a distant memory.
>
> A bi-furcated economy and a bi-furcated nation. The economy of the
> Occupiers where every prospect pleases and the economy of the Occupied
> where the sun shines less frequently and the vistas become more barren.
>
>
> If only it were bi-polar, so polarity could be reversed.

Oct 30 03:00 PM

[Glen88:]

Here is another interesting analogy. The US is the hippocampus of the worlds financial brain. Its nimble-ism is akin to plasticity. Its plasticity makes it prone to instability (seizures or mood swings). At the same time it can more quickly adapt to disruptions, with neurogenesis based plasticity being related to the speed and ease in which it can adapt. Of course there is consistent stability outside of the hippocampus (the elites are the PFC, and they always get paid).

Oct 30 03:42 PM

[Zmartmoney:]

Bob,
Your discourse reveals your readiness to stand and salute the flag of the tax-and-spend liberals plundering Washington along with their statist corporate banking buddies. User's comments are spot-on in a reality that doesn't depend on the evening news telling me that I'm doing well. He likely believes that the Constitution is a durable document that is being ravaged and trampled by those in power. He also likely believes that this is all about power and has nothing to do with "fellow-man" or "compassion" or any other of the BS words that try to cover the lust for power in a cloak of righteousness. I see a hammer and an anvil - the hammer is in Washington, and the anvil is at dirt level - the middle class lies in between, not really able to pierce through the smoke and fog to see what's coming. The likelihood that any of what we're talking about here will be "addressed constructively by mainstream thinkers and not simply dismissed" is fantasy. The "mainstream thinkers" have already left for happy hour.


On Oct 30 03:00 PM bob adamson wrote:

> An interesting point is that once one moves beyond the centre-left
> and the centre-right mainstream of political and economic thought
> in the US the analysis that User 353732 gives here is quite common
> on both the further left and further right. It is the view of the
> populist outsider and an expression of frustration and anger with
> the perceived failures of the political and economic process currently;
> a perception with a real basis of fact.
>
> It is unclear where that analysis leads in a constructive sense but
> it must be addressed constructively by mainstream thinkers and not
> simply dismissed.
>
> bob adamson
>
> On Oct 30 01:34 PM User 353732 wrote:

Oct 30 05:22 PM

[Pat C:]

I bet Zmartmoney and user 353732 are alot closer than us or them imagine.

Oct 30 05:53 PM

[sethmcs:]

Bipolar market? Wonderful! VIX is up and options prices are up. Good time to sell insurance to the fearful. Dr. Feelgood says: What me worry?

Oct 30 06:05 PM

[a fat panda:]

"Confidence improved in April and May, as the bloodletting at companies seemed to subside. Then confidence took a summer hiatus in June and July and came back up in August and September."

Do you think that there might be a little correlation of the stock market to consumer confidence.

Mar Low - April market is up 20+% In April confidence improves
April market is up 7% in May confidence improves
May market is up 3% in June confidence slows
June market is flat in July confidence continues to wane
July market is up 8% in August confidence improves
Aug market is up 4% in September confidence improves
Sept market is up 2% in October confidence starts going down.
Oct's market is flat want to bet about what confidence is going to do next month?

Oct 30 10:26 PM

[Falconflight:]

And I would bet my portfolio that 90% of Fed. Congressmen and Senators will be re-elected in 2010. Who's the blame? I mean really, who's the blame?


On Oct 30 01:34 PM User 353732 wrote:

> The economy is not bipolar it is bi-furcated.
> The small part at the top where the elites luxuriate in splendor.
> They control all the levers of power, resource allocation and mass
> propaganda. For them these are times of great growth and jubilation.
> All they survey is under their dominion and they take what they want,
> when they want and as often as they want.
> The large part at the bottom is where ordinary Americans live, where
> many struggle and are fearful and stressed. For them these are times
> of compression and distress. They listen for the financial knock
> in the night from the elites that means more taxes, regulations,
> transfer payments and humiliations even as disposable income falls,
> credit becomes scarcer and net worth either stagnates or erodes.
> For them growth is remote and jubilation a distant memory.
>
> A bi-furcated economy and a bi-furcated nation. The economy of the
> Occupiers where every prospect pleases and the economy of the Occupied
> where the sun shines less frequently and the vistas become more barren.
>
>
> If only it were bi-polar, so polarity could be reversed.

Oct 31 12:06 AM

[bluesky123:]

China's jobs are increasing because they invest with wisdom. China's government launches 20 VC funds across China, funds them with $1.3billion and starts cranking up their jobs and innovation engine. We throw the tax payer money out the window.

www.chinadaily.com.cn/...

Oct 31 06:07 AM

[woollyB:]

The bipolar metaphor is a good description of what HAS happened, but extrapolating that trend into the future isn't much of a forecast. The sorry state of the economy has been pretty clear all along; it's just been clouded by federal stimulus and a huge stock market rally, which I think is pretty close to resolving in a crystal clear way on the downside.

Oct 31 10:09 AM

[Clive Corcoran:]

Bipolar disorders are an appropriate response to being placed in a "double bind" situation, which is a fairly good characterization of the problematic nature of the US economy and its current "recovery".
It's all a matter of hurry up and wait!

Oct 31 10:18 AM

[Moon Kil Woong:]

The government is hell bent on increasing leverage, atificially decreasing risk, increasing money supply, and causing inflation. The natural reprucussions are bubbles, increasing risk, and market and asset misallocation and dislocation. For some reason they don't get it, yet the market does.

Inevitably, market participants especially financial institutions will turn towards investing in artificially low risk and means of profiting on free money the same way consumers realize that the Federal reserve disincitivizes savings and rewards debt and consumption. Risk begets more risk that inevitably leads to instability and market crashes. Every administration fails on this point or gets it and just tries shirking the ramifications onto the next administration. Either way America loses.

Oct 31 10:43 AM

[HomeEconomics:]

The economy isn't bipolar, it's just the result of government policy that is one-sided.

The sole purpose of an economy (and financial system) is to benefit the population, but the government has decided that the people should benefit the economy (and financial system) even though that same financial system failed in its efforts to benefit the global population.

Now we sit and wait to see whether the printing presses win and we get stagflation (due to the inflated money going to non-productive ventures) or whether they lose and we get continued deflation ala Japan (due to the real problem which is declining credit, not a deflated currency base).

Oct 31 10:56 AM

[Michael Clark:]

Actually, the Republicans did fine plundering America for the last two decades -- and to suggest that it is a 'liberal' plot that brought America down misses the reality. Greed from the right sank the ship. Now misjudgement from the left is making things worse. There are a lot of corporate banking buddies of the right who did just fine, thank you, with their friends the Republicans.

I think what Bob was saying is that the extreme right and the extreme left in America have a message that is getting closer and closer and this message needs to be addressed by the centrist politicians in power, democrats and republicans, or there is going to be hell to pay. And I think Bob is correct in his understanding.


On Oct 30 05:22 PM Zmartmoney wrote:

> Bob,
> Your discourse reveals your readiness to stand and salute the flag
> of the tax-and-spend liberals plundering Washington along with their
> statist corporate banking buddies. User's comments are spot-on in
> a reality that doesn't depend on the evening news telling me that
> I'm doing well. He likely believes that the Constitution is a durable
> document that is being ravaged and trampled by those in power. He
> also likely believes that this is all about power and has nothing
> to do with "fellow-man" or "compassion" or any other of the BS words
> that try to cover the lust for power in a cloak of righteousness.
> I see a hammer and an anvil - the hammer is in Washington, and the
> anvil is at dirt level - the middle class lies in between, not really
> able to pierce through the smoke and fog to see what's coming. The
> likelihood that any of what we're talking about here will be "addressed
> constructively by mainstream thinkers and not simply dismissed" is
> fantasy. The "mainstream thinkers" have already left for happy hour.
>

Oct 31 12:26 PM

[Michael Clark:]

This is true. Also, the fact that we have been expanding the economy for 20 years with inflated prices, thinking the economy goes one way only....we're exhausted and need a rest. Deflation is the way an economy rests. We CANNOT expand anything for ever. Greenspan/Bernanke (twins) have a view that the economy MUST expand for ever. This is a VERY immature philosophy, and we are now paying a huge price because our leaders are working (and foisting on the populace) a mediocre, immature, one-sided philosophy. Up and down; in an out; over and under. NOTHING goes in one direction for ever. Deflation is designed to save us from ourselves.


On Oct 31 10:56 AM HomeEconomics wrote:

> The economy isn't bipolar, it's just the result of government policy
> that is one-sided.
>
> The sole purpose of an economy (and financial system) is to benefit
> the population, but the government has decided that the people should
> benefit the economy (and financial system) even though that same
> financial system failed in its efforts to benefit the global population.
>
>
> Now we sit and wait to see whether the printing presses win and we
> get stagflation (due to the inflated money going to non-productive
> ventures) or whether they lose and we get continued deflation ala
> Japan (due to the real problem which is declining credit, not a deflated
> currency base).

Oct 31 12:32 PM