The response to Hurricane Katrina, in terms of handling the people hit by it was woefully inadequeate. The response to keep the Bush Boom going was pretty good - tap the strategic reserves of oil, remind European elites that if we go under so does their asset base, and pour money into pouring concrete. That and some carefully cooking of the employment books to keep things looking rosy, was enough to produce a brief breather in the economy. However, that breather is just about over, and even though consumer and business confidence spiked up after the worst didn't happen from the year of storms, this is a temporary effect.
In otherwords, politically, it is almost time to short George Bush again, as soon as the holiday euphoria passes.
[And yes, you can order the Katrina CD. Since no charity wanted the profits, I will be donating 25% of procedes as of February 1st to charities for Katrina relief. Leave a suggstion in the thread if you have one.]
Let's start from some ground work - business goes in cycles. Managing the business cycle is the realm of macro-economics. Macro-economic indicators look at the whole economy, and whether people are either putting off doing what they should because of concerns about the big picture, or are rushing to do what they shouldn't because the economy is overheated. GDP, the Unemployment Rate, the Federal Funds rate - these are all macro-economic indicators of how things are going.
Right now the Bush executive is acting as if this economy is just coming out of recession. This is supported by underlying numbers. Corporate balance sheets are just getting cleaned up, profit growth is driven by revenue reductions, corporate investment and non-residential/non-government construction is not strong, even as there are signs of deflation in manufacturing and inflation in commodities. In short a fragile economy that breaths OK so long as we don't unplug it.
That we are in the boom phase of this cycle should be beyond dispute - we have had rebound, recovery, landing and expansion phases. Booms go on as long as the easy money remains, and until there is a financial crisis that forces paying back bad loans rather than making new bad loans. Boom phases produce higher than cyclical average job growth, which for this cycle means more than 100K private payroll positions, and inflation.
Katrina threatened to be a disruption since it slowed down exports - which are growing - and higher oil prices, which would hurt consumer discretionary spending just in time for the retail season. Basically, half of all of the stuff that isn't cars, entertainment or houses that consumers buy, is bought during this period of time.
The response from the top - not just Bush - was to buffer the economy. This, in itself, is non-controversial. Anyone would have openned the SPR and Europe's SGR. This was done, and it pushed gasoline prices down by almost 40% in the space of weeks. The hope was that it would not merely buffer the economy, but break the back of speculators in petroleum. The problem is that because nothing is being done, and nothing is going to be done, about the meso-economic problems in the American economy, the speculators may have run for cover - Gold - but they aren't going to take their eyes off of oil. Instead of buying currencies and equities, which would help the economy by keeping money in the investment system, resource speculators have moved to keep money in the commodities inflation system. Gold, because it is a supported commodity, deeply liquid, but also relatively scarce compared to the currencies which can buy it, is the best place to park that money.
The signs that this small breathing space is coming to an end are accumulating. In itself it helped slow the economies of the United States and Europe down from a torrid pace, and allowed another large round of fiscal stimulus to keep hiring going. This is damning with faint praise - buying a couple of months at the cost that it was bought, and then frittering them away is not much of an accomplishment.
The breather is not going to crash down, but it is going to be enough of a let down to make current caution in the business world justified. The stock market can smell that we have priced in a good year next year, and wants to see if there is some upside suprise. The 160 billion in stimulus planned, between revenue reductions, Iraq and the perscription drug benefit - are not sufficient to increase profit expectations.
This means that while Bush is off of his lows, he is not going to bounce back much more than the 40's, and what is as important, those who are moving back to approving, are only swing "how am I doing today" voters. That is, he has lost permanent support in the center, even if he has gotten back some of the muddled middle.
Indicators are that energy prices will begin to rebound shortly, and that natural gas prices will continue to make new highs. What this breather has also done is confirm that commodity inflation is still where to invest. The best way to look at this period is equivalent to the Nixon expansion of 1970-1973, which set the American economy up for a series of crisis points.
What bears watching is a pair of indicators - will the yield curve actually invert, after having a "curl" for a few days recently - and whether the Unemployemnt Insurance "J-Number" comes in higher than last year, which would be the first part of an indication of a hiring recession.
In short, the long term disintegration of Bush support has been slowed only slightly by $2/gallon gas, and a burst of corprate investment. But without a self-sustaining recovery, all that is really being done is borrowing from the next recession, and enacting "retirement cuts" for the baby boom.