EDITORIAL: The 2012 economy

OPINION:

Consumer confidence is at the highest level it’s been since the recession officially ended in February. Many financial analysts share the optimistic outlook. An Associated Press poll of economists projected higher growth for the U.S. economy in 2012. The bad news is that the positive growth figure is contingent on Europe’s economic situation remaining relatively stable - and that’s not likely.

Though U.S. consumer confidence is up, December’s 64.5 score is far from the 90 found in a stable economy. The truth behind the headlines is that the prospects for 2012 are bleak. That’s because the European situation remains precarious. Instead of focusing on true fiscal reforms, Eurocrats are expanding credit. They remain fixated on short-term fixes that don’t address the root cause of their economic problem: massive overspending.

Our own Federal Reserve is adding fuel to the fire, further entangling America in the mess by engaging in what it terms “temporary U.S. dollar liquidity swap arrangements” with the European Central Bank (ECB). Last summer, this amounted to $2.4 billion. By Dec. 14 of this year, the figure had jumped to $54 billion, as former Dallas Fed Chairman Gerald P. O’Driscoll Jr. points out. Effectively, the Fed is helping the ECB bail out profligate eurozone members - a task well outside its competency and one that endangers the stability of the U.S. financial system and economy.

Despite the uptick in consumer confidence, the economic fundamentals aren’t encouraging. The U.S. housing market remains depressed in much of the country. Nineteen of the 20 markets covered by the Case-Shiller indices reported price drops in October, according to the most recent report. Eighteen reported a drop for the year, with the average home in Atlanta losing 12 percent of its value. Nationwide, the drop averaged 3 percent - not exactly a hopeful sign that robust economic recovery is around the corner.

Fewer than a quarter of employers are planning to make new hires, and 7 percent are planning to let go of employees. The current unemployment rate of 8.6 percent was driven down largely by seasonal jobs that will be coming to an end soon. It’s not clear whether the economy will create enough new positions to absorb the employees released or whether the unemployment rate will spike back to 9 percent.

There are steps the federal government should take to help. Congress needs to ask Fed Chairman Ben S. Bernanke about the Fed’s entanglement with the ECB. Congress should rein in the regulatory agencies that have created uncertainty in the business community. Washington needs to adopt long-term tax and entitlement reforms to restore the confidence of the markets. Lawmakers should work toward the smaller government voters indicated they want. That’s the path to recovery and prosperity.

The Washington Times