07/14/2010 03:44 pm ET | Updated May 25, 2011

A Tale of Two Worlds

Today's Wall Street Journal has my kind of headline: "Fed Sees Slower Growth - Officials Debate How to Respond if Recovery Falters; Softer 2nd Half Is Seen." I like the use of the word "sees." If you roll it around a little, it almost sounds like seer (i.e., a person with the supposed power to foretell events or a person's destiny, a prophet). You might think of "sees" as in sage wisdom based on experience and insight. I prefer to think of "FedSees" (I've written the term in its more formal compound Germanic form) as a guess or hunch based on talking to like-minded individuals.

Often newspapers or commentators talk about "Inside the Beltway." The concept is that the Federal Government and Congress are rather insular, only paying attention to thinking within Interstate 495, the highway system that encircles most of the Washington, DC metropolitan area. I think this is a bit narrow. I would add Wall Street to inside-the-Beltway. Now before you start thinking this is a Wall Street bashing article, it is not; sorry. It is, however, about two economic worlds: Global and Main Street. The two worlds intersect at times, but are often light years apart. More importantly, Wall Street and Inside the Beltway belong to the Global Economics world, not to Main Street, the universe that represents the vast majority of the US population. It is true that we all benefit in some way when Wall Street does well. It is also true that individual benefit is not immediately evident to most people nor easily explained to the general public.

When Bernanke came running to Paulson and Congress to plead for a bailout, he was doing so because the global economic world was imploding and taking Main Street with it. However, the bailout was used solely for the global economic world. If that hyper world interacted in some tangential way with Main Street, then the bailout would perhaps help the entire country. We are now 18 months past Professor Bernanke's epiphany and like the old commercial: "Where's the beef?"


The above graph compares annual housing completions and annualized unemployment since 1968. Construction has always been the basic US-centric component that put people to work. Almost every time construction completions are at a low (i.e., preceded by a steep decline and followed by a steep increase), unemployment goes up.

The fact is that housing completions are at a 50-year low and our unemployment is at a 50-year high. When the FedSees slower growth, I think it's not worth the headline. It's similar to writing: Active trumps passive. Seeing is not doing.

I am sure the Fed will do the worst thing possible, cut interest rates. We do not have an interest rate problem. We have a bank problem. Anyone involved in selling or buying a home knows that banks are establishing criteria so stringent that no matter how much money is available, demand is suppressed. The true constraint is the banks. The Fed and the Treasury are Global Economics folks. The President's policy advisors are Global Economics geniuses.

Come November, "Where's the Beef" should be the rallying cry of any candidate running against an incumbent. Tip O'Neal said: "All politics are local." Nothing is more local than construction. November is one of those times the global world meets Main Street.