Thursday, October 15, 2009

Another Minute on the Minutes (FOMC, That Is)

Meant to cover this in yesterday's post but forgot. This, in a nutshell, is what keeps me up at night (also from the FOMC minutes):

"Some of the recent gains in activity probably reflected government policy support, and participants expressed considerable uncertainty about the likely strength of the upturn once those supports were withdrawn or their effects waned."

I think we'd all agree that the word "probably" clearly doesn't need to be in there. This, to me, is the crux of the issue. We've had massive government largesse (and rightfully so, I'd add). However, the patient is still so doped-up that we really have no idea what he'll look like when the medicine wears off -- and we know we can't medicate him forever.

The areas in which the government was able to directly intervene, such as the auto market, have showed some signs of life via Industrial Production (which will print again in several hours). However, the government has no direct control over the labor market, the continued weakness of which is keeping wages down, which will continue to constrain spending, etc., etc.

Sooner or later there has simply got to be a hand-off. The question is: Who's going to take it?