Only 36 percent of us approve of our president, and fewer still (18 percent) approve of our Congress. We say our confidence has been shattered, and three out of four think our country is “on the wrong track.” So we tell pollsters, as we slink into the new year.
Surprise: The economy added more than 1 million new jobs last year. It grew at an annual rate of between 3 percent and 4 percent. Share prices rose by over 5 percent, with tech shares up by double digits, these gains being recorded in weeks in which the financial markets are said to be in turmoil.
Exports soared, bringing down the long-standing trade deficit. In November, supposedly traumatized consumers splurged, increasing spending by the largest amount in 3½ years. Final figures forChristmas are not yet in, but my guess is that early pessimistic estimates will prove wrong.
Meanwhile, Peter Wehner and Yuval Levin point out in Commentary that crime is way down; teenage drug use, pregnancies, smoking and drinking are all on the decline; welfare reform is working, bringing down child poverty; and the divorce rate is falling.
Most important of all, unlike their counterparts in most industrialized countries, Americans have enough confidence in the future to make lots of babies. Hardly a society in the winter of its discontent, no matter what Americans are telling pollsters.
But 2007 did not end on a high note. Houses became more like ordinary investments that can decline in value a bit after a spectacular run-up. Foolish lenders found ignorant or greedy borrowers, and made loans that will not be repaid.
Mathematical geniuses at investment banks built models that failed to incorporate the fact that other geniuses were doing the same thing, producing a concerted dash for the exits when the models said “sell,” but failed to say to whom.
Nervous banks, although awash in cash, refused to lend to each other, creating what has come to be called a credit crunch. OPEC cartelists decided that crude oil prices upward of $90 per barrel are nicer than those in the $28 range that they once set as their benchmark. And politicians made it profitable for farmers to grow fuel rather than food, driving food prices to diet-inducing levels.
Through it all, the world learned to be careful what it wished for. Foreigners have been berating Americans for “unbalancing” world trade by running huge trade deficits. Finally, the markets agreed, and drove down the dollar.
The result has been an increase in the competitiveness of made-in-USA goods in foreign markets, and a decline in the competitiveness of foreign-made goods in the showrooms of America. The world got what it wished for: a decline in the U.S. trade deficit.
So BMW is laying off thousands of workers as the dollars it gets for the cars it sells in America no longer buy enough euros to meet its payroll, and European hotels and restaurants are pining for a return of the gauche but high-spending Americans who have switched vacation plans to American resorts, where the dollar is still king.
Foreigners also complained that America was presiding over an era of too-easy credit. Complain no more. Banks are being sniffier when discussing mortgages and other deals with borrowers. This put a stop to the lending so many of America’s critics railed against.
But it turns out that the greed for high returns from dicey paper was not confined to Wall Street. From London to Frankfurt to Sydney, lenders have snapped up bits of dicey and worthless paper. Result: balance sheet wreckage, and not only in the U.S.
Exit some but not all of the CEOs who presided over the misappraisal of risk, clutching multimillion dollar golden goodbyes. Enter the sovereign wealth funds, and the beginning of the re-establishment of the caliphate, with cold cash rather than hot lead and suicide bombs powering the revival.
Having written down the value of so many assets that they needed infusions of equity, Citigroup and others followed the money, which turned out to be in China, Singapore, Abu Dhabi, Dubai and Saudi Arabia.
The sovereign wealth funds of these countries dipped into their petty cash drawers for the odd billions, and ended up with significant positions in many U.S. banks. George Bush says he is happy to see this money come home; others worry aboutthe political influence China and the Arab nations might choose to inject into what were once purely commercial decisions.
What does all of this portend for 2008? Watch this space.
Examiner columnist Irwin Stelzer is a senior fellow and director of The Hudson’s Institute’s Center for Economic Policy.
