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Beware the cure
Posted by: MichaelW on Monday, January 19, 2009

Writing for, Brian S. Wesbury and Robert Stein try to direct a little sunshine on to what's an otherwise gloomy economic outlook. Their prognosis? The worst of the recession is behind us, and it's all sunny skies ahead. The authors rely on some current trends for the prediction that the economy is in the midst of recovery, such as the statistical rise in real wages and purchasing power:
Despite this, hourly wages rose 0.3% in December and were up 3.7% from December 2007. With the Consumer Price Index (CPI) expected to decline by 1.2% in December (data released this Friday), real (or, inflation-adjusted) wages likely increased 1.5%. Moreover, those real wages are likely up 4.8% from a year-ago, the fastest increase since 1972.

In addition, the real purchasing power of workers' cash earnings (total hours multiplied by real hourly earnings) actually increased by about 0.3% in December, putting it about 0.1% ahead of where it was a year ago. In other words, declines in energy prices, as well as some other prices, have roughly offset the damage to consumer purchasing power caused by job cuts and fewer hours for the remaining workforce.
Glenn Reynolds isn't so sure:
Seems more likely that the recession is just getting started. The “stimulus” seems mostly good for padding the wallets of the well-connected, so I don’t see a lot of benefit there. But maybe I’m overly pessimistic.
I'll go out on a limb and say that the good professor Instapundit is just the right amount of pessimistic.

However, I also think that Wesbury and Stein may be correct that the recession is winding up. Unfortunately, that doesn't mean a anything given that our federal government is preparing to embark upon the Mother Of All Spending Sprees.

Regardless of where we are in the economic cycle, I'm quite certain that whatever cure the government comes up with will be quite a bit worse than the sickness it seeks to heal.
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Previous Comments to this Post 

Looking back at the recessions that have occurred in my adult lifetime I note that the official start and end dates always precede the "pain" phase by 6 months-1 year or so. E.g. the early 90s recession was officially over by early ’92 yet the employment curve lagged significantly as well as the general feeling of crisis (which helped Clinton the 1st replace Bush the 1st). Similar effects could be seen in the 2000-2002 timeframe IIRC. I don’t pretend to have any economics expertise whatsoever and have no idea when the current crisis will end, if it hasn’t already. However, I guarantee that we will be whining about it long after it has officially ended and the recovery is well underway.
Written By: CR
URL: http://
We’re beginning a recovery?

Written By: shark
URL: http://
There will be a slight rebound, and yes the Government spending might have a temporary stimulus.

However, then you have to deal with the ever growing deficits. And right on the heels of any nascent recovery comes another energy crises.

I am certain of this because I know that certainly the incoming crowd have not the slightest idea of the right things to do to get more energy production, or rather they know all the wrong things.
Written By: kyleN
The trouble now is that the insanity didn’t end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
"Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That’s probably another $500 billion to $600 billion on top of that," Tilson says.
So after the $1 trillion sub-prime wave of defaults comes the $1.6 trillion wave of "Alt-A" and "option ARM" defaults.

No wonder there is no 9/11-type commission investigating this ecocomic "Pearl Harbor"
Written By: Neo
URL: http://
"Mother Of All Spending Sprees" make that "Mother Of Rampant Abusive Spending Sprees" and you have a good acronym.
Written By: A Fischer
URL: http://
The worst of the recession is behind us, and it’s all sunny skies ahead.
I just got back from a small trip, and everywhere I stopped I talked to people about the economy. Their take? The recession is just starting. Unemployment is set to explode. Everyone fears for their jobs, their homes, their credit rating. They will not spend money. And businesses cannot get credit.

I got back this morning, and a huge store in a mall near me had a huge sign on it: Closing Our Doors, Must Move All Merchandise Now!

That means more unemployed. Circuit City will be laying off 34,000 people in the coming weeks. Banks and other credit lenders won’t give out any credit.

These same people give The Clown™ six months. In six months - about July 4th - if things have no turned around, you will start to see President Inexperienced Messiah start to see his Job Approval Ratings (JARs) start to come down. By Christmas 2009, they will be below 50%.

And I can tell you now, from seeing the lay of the landscape, that things will not be improving any time soon. In fact, they will be getting worse. And by "worse" I mean 9% unemployment and, in 2009, a $1.6 Trillion deficit. With nothing to show for all that money spent.

And THAT is why I say that right now the GOP should look at how many seats they will pick up in 2010. Maybe it will be enough to make Nancy Shmancy a former Speaker.
Written By: James Marsden
URL: http://
You almost get the idea that the media spent so much time talking us into a recession during the election that it is now in just as much of a hurry to talk us out of it now that Obama has won.
Written By: McQ
I have to agree with those that think the recession still has a loooong way to go. Just in my area stores are closing, layoffs are up, people are all talking about cutting back. From a strictly anecdotal standpoint, the worst is still ahead of us. Plus, you add in all this printing and borrowing and inflation has to explode at some point.
Written By: jjmurphy
"So after the $1 trillion sub-prime wave of defaults comes the $1.6 trillion wave of "Alt-A" and "option ARM" defaults."

And let’s not forget the securities that are ’backed’ by credit card debt and wonderful and mysterious creations of those clever Wall St. wizards. You have to hand it to those guys, they have created a perfectly legal Ponzi scheme.
Written By: timactual
URL: http://
The financials had their recession....but now the effects of that will hit Main Street companies. Bad news will keep malaise going for a while. People like bad news.
Written By: Harun
URL: http://
Hugh Hewitt has been featuring Wesbury frequently since the meltdown began, and Wesbury has been making this kind of happy talk in one way or another consistently.

I wonder if HH believes this or whether it’s just an alternate view that might be true and will at least not spread panic.

From what I’ve read the global wealth of the world just imploded from $80 trillion to $60 trillion in the past twelve months. I can’t believe we are going to shake this off like a summer cold.
Written By: huxley
URL: http://
They’re NUTS.

We’re halfway down, and it’ll be five years at least before things are rolling smoothly again.
Written By: Rollory
URL: http://
Written By: huh
URL: http://

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