Today’s much worse than expected March non-farm payroll numbers punctuated
a week that contained the worst combination of bad economic and corporate news
in years. Yet despite this, investors remained distracted by the military sideshow
in Iraq, oblivious to the dismal earnings and economic realities unfolding
in the main event here at home.

The popular view seems to be that all this bad economic and earnings news
is irrelevant because after the war ends businesses will regain the confidence
to hire and consumers will regain the confidence to spend. This confidence
agreement is nothing more than a con itself. Are worries about the war really
inhibiting the economy? Who’s worried? I don’t know of anyone who is worried
about the war, the outcome of which is certain. If anything, companies that
are experiencing a slowdown now, given the rosy outlook for a victory rebound
in the economy, should be less likely to lay people off than they otherwise
would be. In other words, the economic numbers would probably be even worse
were it not for the high expectations associated with a “victory recovery.”

America’s economic problems were not created by Saddam Hussein, and they will
not vanish when he does. A costly occupation and rebuilding of Iraq will only
exacerbate the structural imbalances that are at the heart of America’s economic
problems, the extent of which will only become apparent after weakness in the
U.S. dollar finally sends interest rates soaring, clearly revealing a bubble
economy based on reckless consumer credit, inflated real estate values, over-leveraged
corporations, fiscal and current account deficits, and an over-accommodative
Fed.