It seems that I use most of my time in this space to rail against an unthoughtful regulatory architecture that will certainly surprise and may ultimately do unintended and substantial harm to our nascent and uncertain recovery. While, from where I sit, it’s still fair to say this market continues to show little real conviction that it’s safe to get back in the water (hardly an irrational mindset) there is, periodically, some good news. So let’s make time for a bit of good news. Ta-da: It was reported recently that average consumer credit card borrowings have dropped below $5,000 per person for the first time since 2002.
This is terrific news. Perhaps not the stuff of rational giddiness, but combine that with the fact that corporate earnings are up, private cash savings rates are at recent highs, the de-leveraging is going great guns (everywhere, that is, outside of our government), house prices seem to be stabilizing in most markets even if sales continue to lag, interest rates are at ridiculously low levels and the reality of the re-set of the valuations of both the commercial and residential property stock has been internalized. A bit of optimism is not wildly inappropriate.
All that sets the table for a sustained recovery, albeit a slow one. Yes, there are real risks to this modest good news scenario including, notably, the levels of governmental debt, the exhaustion of the strategy of pushing growth with cheap money, the likelihood of higher taxes and ham-handed regulatory action and continued governmental-bred uncertainly. So prospects for low sustained growth could yet be transmogrified into stagflation.
So, what can be done to support the growth scenario? In large measure, we need to continue to engage in the political and regulatory process to try to mitigate any further potential damage from regulatory misfires or overreach. We cannot make up aggregate demand, rehire away all the unemployment (please hire where possible) or reverse the psychology of the bad news cycle, but we can still play an important role as FinReg and its philosophic regulatory and legislative siblings get implemented.
Beyond that, I plan to fully embrace a strategy of hope. As Labor Day looms and the can kicking of summer comes to an end, we see some data from our admittedly somewhat myopic perch as a capital markets law firm sustained by transactional activity that is consistent with the upbeat scenario. That’s enough to make me mildly optimistic. Could this be vacation induced bonhomie? Maybe. But for the moment, I’m sticking with it. There’s always time to embrace despair later.
By Rick Jones.
