Alan Greenspan remarked about two Americas while making the rounds of talk shows last Sunday. Greenspan reportedly stressed that while certain segments of the economy, and our workforce, are prospering; others are mired in decline. For example large money center banks that received government backing are once again enjoying signficant profitability (at this point I have to admit that despite working in banking and investment management for two decades I am at a loss to judge what truly is bank profitability - so arcane and long tailed are the judgement of bank assets), while smaller banks are not doing as well. Similarly, large companies are enjoying some degree of profitability while smaller businesses are not. S&P 500 Consensus annual earnings estimates have risen to $84 from a figure approximating $80 in the middle of July. Greenspan also opined that our modest recovery was undergoing a "pause" that could feel like a "quasi recession."
The idea that we are not really growing is borne out in M2 money supply statistics. Present day Deflationistaswould probably point to M3, but since the FED doesn't officially publish those data any more; we can capture much of the money base save repos and large time deposits. Perhaps not as comprehensive, or frightening, as the charts that the Deflationista crowd proclaims but it tells much the story. Lack of money growth implies credit contraction which is detrimental to smaller businesses. Larger firms, on the other hand, still enjoy access to the capital markets. IBM's stunning sale of 5 year paper yielding 30 over the Treasury and bearing a coupon of 1% is indicative of this.
Former Chairman Greenspan, a man I once worked for, sounds eerily like former Vice Presidential Candidate John Edwards at the 2004 Democratic National Convention. Edwards, then at the pinnacle of his political career, referred to two Americas based on class divisions.
For once I agree with Mr. Greenspan. This is an uneven recovery that will likely be drawn out and painful for a number people. My only question is: why did not he realize any of these schisms or bifurcations when his easy monetary policy did so much, though not all, to catalyze the problems we are now suffering.