High and Low Finance - Private Sector’s Health Determines a Nation’s Risk - NYTimes.com

NYT:

It is profoundly discouraging to see American politicians screaming that TARP — the bank bailout — is to be blamed for deficits. In fact, the bailout worked. Had something like it not been done, the debt of the United States government might be lower now, but the nation’s credit would be far worse.

Federal debt, as reported, has skyrocketed during the Obama administration. But a large part of that stems from decisions made years before most Americans knew who Barack Obama was, and certainly before he had any power. Those decisions were made by banks and brokers. They were made by Fannie Mae and Freddie Mac when they were not under direct government control.

Other parts of the spending come from efforts to keep the economy from collapsing under the weight of the proof that those earlier decisions were horrendously bad ones.

The economic debate now should be focused on keeping the federal government from someday being similar to Greece, with a weak private sector and a bloated government that cannot collect taxes to meet its obligations.

There is no risk of that in the near term. The United States government can print dollars to avoid default, but it is not having to do so. It can borrow at low rates because investors around the world still trust it.

To keep that trust in the longer term, the economy must grow. It is possible, though not proved, that significant new stimulus is needed. If it is, that spending, too, will partly be to clean up messes made before.

The American economy currently is doing better than it would sound from the rhetoric on both sides of the political spectrum. The two demonstrable signs that the recovery has slowed are in areas — housing and cars — where temporary stimulus programs were artificially spurring growth. It was obvious that there would be brief declines when those programs expired.

But pessimism is intense. There was talk of depression just before the latest stock market rally began, and surveys of investors show levels of bearishness normally seen only after years of market declines. In fact, the market is up sharply from early 2009, and about 20 percent above where it was a year ago.

In Washington, nobody seems to want to see good news. When government employment rose because of Census hiring, that was dismissed as obviously temporary. Now that the Census Bureau is letting people go, that is seen as bad economic news.

The left wants more stimulus spending, and sees economic optimism as playing into the hands of its opponents. The right wants proof that President Obama is doing a bad job, which it hopes will lead to large Republican gains in November, and sees economic pessimism as in its best interests.

In fact, there are few signs of a double-dip recession. As Daniel Gross asked in Slate this week, “Retail sales are up, and credit card debt is down. Why is that bad news?” Americans are spending about 5 percent more than a year ago, even with this week’s retail sales numbers that were pronounced disappointing by some. But it appears that the spending is coming more from those who can afford it than from those who need to borrow.

The important goal now is a healthy economy, and there are signs that it is arriving. Corporate profits were surprisingly strong in early 2010, and early second-quarter reports are encouraging.

It is the success, or failure, in obtaining that goal that will determine whether there is a real crisis in federal debt.

Posted via email from Jim Nichols