Is the Tow Truck Running Out of Gas?
Todd Harrison of Minyanville has been talking about the Feds "buying the cancer and selling the car crash". Instead of mixing metaphors, I am going to take a shot at it using the automobile. And for my road trip, we need to start 75 years ago on an economic side since washed away by history.
When FDR (who I believe did almost nothing else correctly) closed the banks and devalued the US Dollar against gold at the beginning of his first term, he did not fix the flaws in our financial system, but he did rebalance it sufficiently that once the right conditions were in place, the economy returned to growth at a healthy pace. The relaxation of onerous regulations (enacted by the same FDR) combined with the annihilation of our economic competitors during WWII and the release of pent-up demand after the war, propelled the US economy down the road of prosperity for the next two decades. But when the performance of the American economic vehicle started to get a little sluggish in the 60's, an economic tow truck (with the name Easy Fed Policy painted on the side) gave the Mustang that was the economy a little push to get it going again. For the next decade, the tow truck was kept busy continually giving the Mustang a little bump to keep it going until the late 70's when it had gotten lost and ventured off the economic highway and was cruising down a back country road in excess of 100 miles per hour. Somehow a new tow truck driver named Paul Volcker strapped himself into the tow truck and managed to pass the out of control Mustang and get in front of it and apply the brakes to force the rampaging beast to slow down. This was no light tap on the pedal either! By the time the decade of the 80's was in full swing, he had both feet stomping on the brakes as hard as he possibly could. Within a few short years, the once mighty stead found it way back onto the highway and started making progress at a healthy, yet controlled speed. Of course, all those years of cheap gas had taken their toll and the muscle car was now a little bloated, but still powerful and attractive enough to turn a head or two as it passed by. The road was pretty smooth, with an occasional sharp turn, but most of the hills were gentle and rolling. One of the sharpest turns was the stock market crash of 1987, which most people could not help but compare to similar events almost 60 years earlier. But a brand new tow truck driver had recently taken over and he gave the aging beast a solid push as it came out of that turn and was at risk of stalling and it breezed on down the hill that immediately followed. That grade didn't last too long as the next hill was a little steeper than the gas guzzler was accustomed to handling and it wasn't able to make it over the crest without another serious nudge from the bookish tow truck driver named Alan Greenspan. But after a very brief flirtation with stalling near the crest, the next downhill stretch of road appeared and it was off to the races for the by now seriously bloated Detroit machine. There was a small Mexican detour and a little fishtailing in Greenwich, CT, but by the turn of the century the once mighty Ford was cruising along at an astonishing fast clip for such an aging hulk. Especially when most of its Asian competitors were being pulled out of the ditch after wiping out! What came next was truly amazing as good old Alan really stepped on the gas and gave the old Mustang (which by now was not recognizable and resembled a UPS cargo van with fading paint) a good, hard shove forward. And he kept on pushing hard for a couple of years until the graceful pony turned big box on wheels appeared to fly along at speeds as great as any that had been seen in the last few decades. Yet, as often happens at the bottom of every descent, another hill appeared and this was going to turn out to be a doozy. At first, it appeared to be another gentle climb and Alan felt confident enough to hand tow truck's keys over to a nice, well-educated man named Ben. Why he would want to drive a tow truck was anybody's guess, but for some reason he had become obsessed with that big crash that occurred during the 30's and he was going to make sure that it didn't happen again! And the first few years up the hill were fairly easy and Ben said "Don't worry, just around the next turn, it will level out." Oh, how wrong he was! Because after coming out of the next turn, not only did the road not flatten out, but hill was a mountain the size of the Sierras! Not only was the Mustang (now the size of a Mack truck but even uglier) losing momentum, it was actually starting to slip backwards and at a pretty good clip! Ben had two choices, let the monster roll back as far as necessary to find an off-ramp to a more level road or press on ahead with all his might. Of course, he chose the latter, because that is what his predecessor Alan and his studies of the 1930's crash had taught him! And that is where we find ourselves today. Ben was worried that he was going to lose his job, but the tow truck company owner decided to keep him on (probably because he couldn't find anybody stupid enough to take the lousy job, but ostensibly to make sure the job is finished right!) Now Ben and his Boss Barack and all the other drivers back at the shop are saying "Don't worry, it will level out again after this bend in the road." Where have I heard that before? But what if they are wrong? If the road starts sloping down again, we might have a runaway Mack truck on our hands again, like happened in the 70's, but if the road continues to climb or heaven forbid, gets steeper, is there enough gas in the tow truck to push it over the next crest? Ben says that it is no problem, but I have my doubts. Meanwhile, I wonder what he feels like with the sign saying "Gasoline, 50 miles ahead."
When FDR (who I believe did almost nothing else correctly) closed the banks and devalued the US Dollar against gold at the beginning of his first term, he did not fix the flaws in our financial system, but he did rebalance it sufficiently that once the right conditions were in place, the economy returned to growth at a healthy pace. The relaxation of onerous regulations (enacted by the same FDR) combined with the annihilation of our economic competitors during WWII and the release of pent-up demand after the war, propelled the US economy down the road of prosperity for the next two decades. But when the performance of the American economic vehicle started to get a little sluggish in the 60's, an economic tow truck (with the name Easy Fed Policy painted on the side) gave the Mustang that was the economy a little push to get it going again. For the next decade, the tow truck was kept busy continually giving the Mustang a little bump to keep it going until the late 70's when it had gotten lost and ventured off the economic highway and was cruising down a back country road in excess of 100 miles per hour. Somehow a new tow truck driver named Paul Volcker strapped himself into the tow truck and managed to pass the out of control Mustang and get in front of it and apply the brakes to force the rampaging beast to slow down. This was no light tap on the pedal either! By the time the decade of the 80's was in full swing, he had both feet stomping on the brakes as hard as he possibly could. Within a few short years, the once mighty stead found it way back onto the highway and started making progress at a healthy, yet controlled speed. Of course, all those years of cheap gas had taken their toll and the muscle car was now a little bloated, but still powerful and attractive enough to turn a head or two as it passed by. The road was pretty smooth, with an occasional sharp turn, but most of the hills were gentle and rolling. One of the sharpest turns was the stock market crash of 1987, which most people could not help but compare to similar events almost 60 years earlier. But a brand new tow truck driver had recently taken over and he gave the aging beast a solid push as it came out of that turn and was at risk of stalling and it breezed on down the hill that immediately followed. That grade didn't last too long as the next hill was a little steeper than the gas guzzler was accustomed to handling and it wasn't able to make it over the crest without another serious nudge from the bookish tow truck driver named Alan Greenspan. But after a very brief flirtation with stalling near the crest, the next downhill stretch of road appeared and it was off to the races for the by now seriously bloated Detroit machine. There was a small Mexican detour and a little fishtailing in Greenwich, CT, but by the turn of the century the once mighty Ford was cruising along at an astonishing fast clip for such an aging hulk. Especially when most of its Asian competitors were being pulled out of the ditch after wiping out! What came next was truly amazing as good old Alan really stepped on the gas and gave the old Mustang (which by now was not recognizable and resembled a UPS cargo van with fading paint) a good, hard shove forward. And he kept on pushing hard for a couple of years until the graceful pony turned big box on wheels appeared to fly along at speeds as great as any that had been seen in the last few decades. Yet, as often happens at the bottom of every descent, another hill appeared and this was going to turn out to be a doozy. At first, it appeared to be another gentle climb and Alan felt confident enough to hand tow truck's keys over to a nice, well-educated man named Ben. Why he would want to drive a tow truck was anybody's guess, but for some reason he had become obsessed with that big crash that occurred during the 30's and he was going to make sure that it didn't happen again! And the first few years up the hill were fairly easy and Ben said "Don't worry, just around the next turn, it will level out." Oh, how wrong he was! Because after coming out of the next turn, not only did the road not flatten out, but hill was a mountain the size of the Sierras! Not only was the Mustang (now the size of a Mack truck but even uglier) losing momentum, it was actually starting to slip backwards and at a pretty good clip! Ben had two choices, let the monster roll back as far as necessary to find an off-ramp to a more level road or press on ahead with all his might. Of course, he chose the latter, because that is what his predecessor Alan and his studies of the 1930's crash had taught him! And that is where we find ourselves today. Ben was worried that he was going to lose his job, but the tow truck company owner decided to keep him on (probably because he couldn't find anybody stupid enough to take the lousy job, but ostensibly to make sure the job is finished right!) Now Ben and his Boss Barack and all the other drivers back at the shop are saying "Don't worry, it will level out again after this bend in the road." Where have I heard that before? But what if they are wrong? If the road starts sloping down again, we might have a runaway Mack truck on our hands again, like happened in the 70's, but if the road continues to climb or heaven forbid, gets steeper, is there enough gas in the tow truck to push it over the next crest? Ben says that it is no problem, but I have my doubts. Meanwhile, I wonder what he feels like with the sign saying "Gasoline, 50 miles ahead."
posted by Matt Butler at 4:59 PM
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