Two Economies

We've discussed in the past my thinking about how America has devolved into two economies and here is a place where I've discussed that in more depth. Barry Ritholtz over at The Big Picture commented yesterday on Alan Greenspan's Meet The Press interview on the same subject.

BTW I think the households under my $60,000 income threshold are in worse shape now than a year ago. Excerpt with my highlights. The italicised portion is the transcript of Greenspan's comments.

“Our problem, basically, is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it and are carrying what consumption there is. Large banks, who are doing much better, and large corporations, whom you point out and the–and everyone’s pointing out, are in excellent shape.

The rest of the economy, small business, small banks, and a very significant amount of the labor force, which is in tragic unemployment, long-term unemployment, that is pulling the economy apart. The average of those two is what we are looking at, but they are fundamentally two separate types of economy.”

-former Fed Chair Alan Greenspan, Meet the Press

Here are Ritholtz' comments:

Fascinating quote from Easy Al on Meet the Press via Bloomberg. It has 3 subtexts that might not be readily apparent — until we break it down:

1) Extend the Bush tax cuts on highest bracket earners: Since its the 401(k) crowd that are carrying the recovery, Greenspan suggests, then we best not crimp the income of these big spenders

2) Two Americas: Greenspan seems to be channeling John Edwards when he discusses two economies. The bailouts reduced competition. They extended the life of badly structured financial firms, and forced smaller firms to scramble.

3) Greenspan’s Legacy: It seems that Easy Al can figure out precisely what he has wrought. The secret to getting such candor out of the former Fed chief is to trick him into discussing the broader economy. That way, he does not realize that he is discussing the effects of his tenure as FOMC chair

Of course, Greenspan is still wrong on Housing. Recall that he failed to recognize the impending housing correction (collapse more accurately) and made claims that the worst was behind us — just as housing was accelerating downwards:.....

....One last thing: {Ritholtz} gives Greenspan credit for this touch of tax cut honesty:

“Look, I’m very much in favor of tax cuts, but not with borrowed money. And the problem that we’ve gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money, and at the end of the day, that proves disastrous.”

Link: Ritholtz: Two Economies.