The American President heads into the G-20 meeting having been told by his top advisers that the U.S. economy is showing signs of recovery. New home sales rose by 4.7 percent last month, durable goods orders were up, the stock market is at least sitting up in its sick bed, and applications for mortgages soared as mortgage rates fell to a low of around 4.5 percent for 30-year fixed rate loans. Many of these applications are aimed at refinancing existing, higher-rate mortgages, but as one administration economist put it to me, that is the equivalent of a tax cut, as homeowners who pay less interest each month have more to spend in the shops. But he is nevertheless warning his boss that these positive signs just might be the real economy's equivalent of the sort of dead-cat bounce that occurs in bear markets--share prices rise, only to fall back again. Braver thinkers are wondering whether the real economy might lead the financial sector out of the recession, whether the other way around, as we have always assumed.
Obama is also being advised that he should tamp down expectations of what might come out of this meeting, lest disappointed investors run for cover at its conclusion. After all, the Europeans will not go along with his request for a coordinated stimulus, and he will not go along with all of their demands for heavy-handed regulation of financial markets. The problem is that the British Prime Minister and host, Gordon Brown, who sees this
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