Economic Scene - Betting That Cutting Spending Won’t Derail Recovery - NYTimes.com

David Leonhardt in this morning's New York Times does a very good job of summarizing our current economic scene, so it is worth a read.

Here's an excerpt:

As is often the case after a financial crisis, this recovery is turning out to be a choppy one. Companies kept increasing pay and hours last month, for example, but did little new hiring. On Tuesday, the Conference Board reported that consumer confidence fell sharply this month.

And just as households and businesses are becoming skittish, governments are getting ready to let stimulus programs expire, the equivalent of cutting spending and raising taxes. The Senate has so far refused to pass a bill that would extend unemployment insurance or send aid to ailing state governments. Goldman Sachs economists this week described the Senate’s inaction as “an increasingly important risk to growth.”

The parallels to 1937 are not reassuring. From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive Roosevelt’s spending cuts and new Social Security tax. In 1938, the economy shrank 3.4 percent, and unemployment spiked.

Given this history, why would policy makers want to put on another fiscal hair shirt today?

Economic Scene - Betting That Cutting Spending Won’t Derail Recovery - NYTimes.com

Lest I be accused of being overly pessimistic (moi?), I should note that I attended a very interesting breakfast meeting this AM with the Ned Davis Research Group. I've always liked the Ned Davis research, since it compiles a vast amount of data and reaches its conclusions based on the numbers rather than "gut instinct".

The Ned Davis people remain bullish on stocks, believing that the emotions of the market are overlooking some pretty strong corporate earnings reports. They noted, for example,that the figures from the emerging markets remains very positive, and they don't see too many signs of their growth slowing.

However, they did note that most of their bullish stance is based on their optimism on emerging markets. If we see a slowdown in China, for example, they will need to revisit their position.

I should also mention they remain very negative on bonds (which is not a view I share, by the way).

We shall see.