Connelly on Commerce

The California economy is looking up in a number of dimensions lately: the Facebook IPO (and increased tax collections); the housing market bottoming (along with mortgage rates); a new “war for talent” in Silicon Valley; and a Governor who knows what he’s doing (even if you don’t like it).

But the biggest gift to the recovery in the world’s eighth largest economy may be the unsettled republican Presidential primary field. If Mitt Romney doesn’t win his erstwhile “home state” Michigan, or Arizona on February 28, then we could go on to a two- or three-way split decision on Super Tuesday among the Midwestern and Southern states. We have got ourselves a real horse race just in time for the Kentucky Derby!

So if among Sanctum Santorum, Mobility Mitt, Newt the Coot and RuePaul, we still have no clear front-runner in May, and all of the Final Four keep pledging to go “all the way” (with or without birth control), we could find that the race comes down to California in the first week in June, for the first time in ages.

What a bonanza for the California economy: all the campaign advertising and SuperPAC splurging on local TV and radio; all the plane-loads of reporters scrambling across the state trying to cover the biggest gaffes; all the Cable TV pundit shows relocating here for the week to set up ESPN-like “Game Day” sets in various Republican enclaves (how would Atherton handle the traffic?).  Not to mention the spending on food and drink, the hotel bookings and short-term house rentals, the suspiciously well-timed Sarah Palin bus tour of the Central Valley, and the sheer novelty appeal of candidates coming out here looking for votes and not just money. This could be bigger than Jeremy Lin!

Of course, a continued improvement in the California economy would undercut a central premise of the Republican campaign narrative – namely, that we are heading for a Grecian economic meltdown if Obama is re-elected. But never mind, they can always fall back on the new theme that Obama is a closet French (of course) revolutionary who would off the heads of anyone who doesn’t use contraceptives. Somehow, one doubts that line will play in California. They’ll have to come up with something new, just for us!

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Greece will be the center of finance universe over the coming weekend and well into next week, as the comedy/farce/tragedy of this nearly failed state’s debt negotiations with the European bailout institutions and the IMF continue.

Having finally seen the “details” of further austerity measures, Greece’s political leadership has signed up to it. At the 11^th hour, it outlines the related bond restructuring  “volunteered” by the country’s private-sector creditors. Europe’s council of Finance Ministers has added three new pre-conditions to the release of bailout funds in time to stave off a Greek bond default around the Ides of March. Let’s call these conditions the Ides of February, as they must be fulfilled by Wednesday the 15^th:

1. The Greek Parliament must approve the austerity measures in a vote scheduled for this weekend – the leaders signed promises are obviously not enough to take to the bank, as it were;

2. The Greek Government must also come up with specific savings in the budget for the current year to take the place of the cuts in pensions that the political leaders refused to agree to – mere promises to “cut defense spending” are clearly insufficient;

3. The Greek political leaders must also agree not to scuttle the deal after the election in April installs one or the other of them, or some combination, as the new Greek Government.

None of these conditions is either surprising or unduly onerous, but will no doubt be interpreted by some in the markets as another frustrating delay in a solution to the crisis. Americans like results. But in this case, patience not only should be rewarded but also respected — this is the only path to avoid the chancy “solution” of disorderly default, which will occur otherwise.

We should have learned by now that in terms of Greece, everything goes down to the wire, and then some. But it remains better than the quick trigger we pulled on Lehman, sparing us about $30 billion in moral hazard in exchange for trillions in real hazard, three years of recession, a couple or three banks, and eight million jobs.

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