Free Markets, Free People

recovery

Recovery? Maybe it is time to use the “D” word

Market Watch writer Al Lewis opines:

The Great Depression that Federal Reserve Chairman Ben Bernanke claims to have averted has been part of the background radiation of our economy since at least 2008.

It’s just that like radiation — it’s invisible.

Uh, no.  It’s no.  It is simply a word, a description, that most of the media refuses to use.

Here, try it out.  “Depression.”  See, it’s not so hard.

In fact anyone who takes an objective look at what we’ve been suffering has concluded that while our current condition may not fit the arbitrary definition of whatever is considered a depression today, our economy certainly isn’t in any condition to be called recovered or even “recovering”.  In fact, it is a disaster:

 

073112recovery1

 

In a new research note, JPMorgan points out that since 1970, Japan, Finland and Sweden have all gone through what the U.S. is currently going through. And all three of them had recoveries stronger than America’s. The above chart compares the economic recovery — as measured by real GDP per capita — of each nation at different points after the trough of their recessions. And the U.S. is in dead last after 12 quarters from the bottom.

Take a particular look at Japan.  That is the economy during the “lost decade” that we’re currently underperforming.  Says JP Morgan’s Michael Feroli:

The poster child for slow growth coming out of a debt-fuelled financial crisis has to be Japan, which ever since the early 1990s has had trouble getting a head of steam. The recession which kicked off Japan’s “lost decade” lasted from 1991 to 1993. Including the recovery experience from that recession is sobering: we are currently faring worse than Japan at the same point in their lost decade.

So what’s the plan?  How are we going to work ourselves out of this position?  What policies will we institute to begin the actual, not pseudo, recovery?  Well, it’s an election year.  Don’t expect to hear the hard truths from this administration.  Instead, prepare to be reminded “its working”.  That in spite of reality:

As the economy reels, the national debt approaches $16 trillion, and we hear fears of Congress jumping off a fiscal cliff by year-end. Many states and local governments are struggling with massive deficits, too. Three California cities have filed bankruptcies.

U.S. companies are warning of slower growth amid Europe’s meltdown, yet the Dow Jones Industrial Average has crossed the 13,000 mark, and some observers are predicting new highs for the index soon.

The rising stock market is as counterintuitive as interest rates falling to new lows after the U.S. lost its triple-A debt rating last year. It isn’t that investors aren’t wary. It’s just that every place else makes them more wary. This isn’t the definition of a recovery.

No, it’s not.  But then Lewis doubles down with stupid:

The cure for our battered economy has been to allow our disasters to occur more slowly through taxpayer bailouts and extraordinary interventions from the Fed. So far, this strategy has worked. We have averted a sudden crash in favor of a depressingly slower one.

As we said from the very beginning, you can either let the economy takes its course and suffer the results quickly, get over it and recover, or you can find a way to extend it to where the effect may not be as dramatic but will linger and linger and linger.

We chose the latter path and it hasn’t at all worked out the way it was predicted (remember, at this point, unemployment was supposed to be in the 5% area if the stimulus was approved and 8% area if it wasn’t – so it’s hard to say “it worked”, isn’t it?).

The spin says the downturn was softened.  But again, I point to the promises vs. the reality.  We are no better off in terms of unemployment than it was claimed we’d be if we didn’t go an additional trillion dollars in debt.

And the economy isn’t recovering, it’s bouncing along the bottom of a trough with the possibility of going even lower if Europe implodes.

Yet the only plan I’ve seen or heard about is to repeat what failed previously with the Fed talking about a QE3 while we’re already awash in about 10 trillion dollars in funds it has already injected.  I don’t know about you but I simply haven’t much confidence in Ben Bernanke’s assurances that he can wring all that cash out of the system without triggering another economic downturn or hyperinflation.  History is not on his side.

I think Ace points to the truth of the matter that the media and politicians simply won’t touch:

This is the worst "recovery" by any nation since 1970, and it could be partly due to a category error: We’re not recovering from a recession, we’re still in the depths of a depression.

That’s right, it isn’t the “worst recovery”.  There hasn’t been a recovery. There have been “bright spots” here and there which quickly faded, but overall, we’re in the same place economically we’ve been for months and years.  And it isn’t an “invisible” depression to the unemployed and those who’ve given up hope and dropped out of the job market.  It is very visible.  And most likely they remember the promises and the results.

Of course, instead of facing this and holding politicians accountable, our media will continue to play to the distractions, the nonsense and the irrelevant instead of asking the hard questions, demanding answers and informing voters.

Unfortunately, such is life in America today.

~McQ

Twitter: @McQandO

How would you rate the Obama recovery?

Investors Business Daily saves you the trouble.  Of the past 10 recoveries since WWII, this recovery rates dead last.

For instance:

Employment: By this point, the average job growth in the past 10 recoveries was 6.9%. Under Obama, jobs have grown by just 1.9%, according to data from the Minneapolis Federal Reserve.

Had the current recovery kept pace with just the average recovery over the past 60 years, there would be 6.5 million more people with jobs today, and the unemployment rate would be below 7%, instead of above 8%. That assumes several million more Americans would have joined the workforce. If the current anemic labor force were unchanged, those 6.5 million jobs would drive unemployment to 4%.

Just as importantly:

GDP growth: The Obama recovery has also performed far worse than average when it comes to GDP growth. After 11 quarters, the economy is still only 6.8% bigger than it was when the recession ended. In contrast, GDP was 16% bigger, on average, by this point in the previous 10 recoveries, the Minneapolis Fed data show.

The current recovery is so slow, in fact, that it just barely beats GDP growth 11 quarters after the 1980 recession ended — even though there was the intervening long and painful 1981-82 recession. And unless GDP shoots up in Q2, the current recovery will soon be the absolute worst since the Great Depression.

Had the Obama recovery tracked the average GDP growth in the 10 previous recoveries, the economy would be almost $1.2 trillion bigger today.

Remember, we’re just talking average here.  If this recovery were a average recovery, we’d see the numbers IBD is talking about.  Instead, this recovery is well below average.  In fact, it defines the bottom.

Incomes: By the third year of the past five recoveries, real median household incomes climbed an average 2.8%, according to the Census Bureau, which only has household income data back to 1967.

But in the current recovery, real household incomes dropped 5.4% during the recovery, according to Sentier Research, which compiles a monthly household income index using Census data.

"Unlike previous recoveries, we actually saw household incomes drop faster during the recovery than they did during the recession itself," said Gordon Green, who co-founded Sentier.

Again, extraordinarily poor performance. 

And, to the claim that Obama has spent less than any other recent president (a laugher if ever there was one and factually wrong), lets examine the actual record on deficits and national debt:

Deficits: The current recovery also doesn’t stack up well when it comes to annual federal deficits. By this point in previous recoveries, deficits were running an average 2.2% of GDP. This year, they’re expected to be 7.6%, according to the Congressional Budget Office.

Here’s another way to look at it: If the deficit-to-GDP ratio matched the average of the previous recoveries, it would be around $341 billion, instead of $1.2 trillion.

National debt: Although Obama claims that he’s cleaning up after the "wild debts" Republicans ran up, the national debt has climbed much faster during Obama’s economic recovery than the typical recovery in the past.

On average, federal debt climbed 9.5% in the first three years of those recoveries, after adjusting for inflation. Under Obama, debt has climbed $4 trillion since the recovery started, a 28% increase in real terms.

Which brings us to the Obama excuses for this poor performance:

Obama routinely blames the deep recession. The problem is that, historically, the deeper the recession, the stronger the recovery has been.

Others have argued that recoveries from financial crises produce sluggish recoveries. However, a paper published by the Atlanta Fed concluded that U.S. history provides "no support" for linking the current mediocre recovery "with the financial crisis of 2007—2008."

And there are those who argue that the stimulus was insufficient. But that’s hard to believe, too, since spending has averaged more than 24% of GDP over the past three years, and deficits averaged 9.3% — higher levels than at any time since World War II.

Obama most recently has argued that Republicans are thwarting the recovery.

"We’ve got too many of my dear Republican friends in Congress that have been standing in the way of some steps that we could take that would make a difference at the moment," Obama said last week.

But Obama got everything he wanted in terms of economic policy his first two years in office, when he had solid Democratic majorities in the House and Senate, including a massive stimulus, Cash for Clunkers, mortgage aid, Wall Street reform, ObamaCare and so on.

The arguments simply have no factual support.  They’re political excuses; the usual attempt at blame shifting  for which this president is so famous.

In fact, his record in this recovery is abysmal.  Yet he’s asking for another 4 years, one assumes, to try to fix what he’s royally screwed up. 

These should be the facts and figures the Romney campaign uses constantly.  And with that, they should also point out the mess a President Romney will “inherit” from the current occupant of the White House.

Forward!

~McQ

Twitter: @McQandO

Observations: The QandO Podcast for 08 Aug 10

In this podcast, Bruce, Michael and Dale discuss the economy, the Democrats’ “Blame Bush” strategy, and the anniversary of Hiroshima.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.

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Quote of the day – why we’re not yet in a recovery edition

Yeah, I know, there are technical definitions of what constitutes a recession and a recovery.  But if you’re unemployed, underemployed or given up on finding a job, you find  none of those technical definitions unimpressive.

Anyway, this particular quote, in a nutshell, tells you why the “recovery” isn’t much to write home about:

Data released by the Bureau of Economic Analysis at the Commerce Department this morning shows that Americans earned a bit more, spent a bit less and saved more in June — all in line with economists’ expectations. Consumer spending drives about 60 percent of the economy, therefore, economists do not expect the recovery to take strong hold until American families feel secure enough and are earning enough to spend again. Unemployment, of course, remains a major drag on the economy.

So, while savings is good in general, it’s not good in a macro sense when you’re in a recession.  And, as the quote notes (and I frankly think the number is low) when 60% of the economy is driven by consumption, increased savings and less spending is not a good sign.  It’s all about confidence, and consumers simply aren’t feeling it.

That may be because of the last sentence which has my vote for the understatement of the year. 

The good news, however, is there was nothing, apparently, “unexpected” about these numbers.

~McQ

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Quote of the day – why we’re not yet in a recovery edition

Yeah, I know, there are technical definitions of what constitutes a recession and a recovery.  But if you’re unemployed, underemployed or given up on finding a job, you find  none of those technical definitions unimpressive.

Anyway, this particular quote, in a nutshell, tells you why the “recovery” isn’t much to write home about:

Data released by the Bureau of Economic Analysis at the Commerce Department this morning shows that Americans earned a bit more, spent a bit less and saved more in June — all in line with economists’ expectations. Consumer spending drives about 60 percent of the economy, therefore, economists do not expect the recovery to take strong hold until American families feel secure enough and are earning enough to spend again. Unemployment, of course, remains a major drag on the economy.

So, while savings is good in general, it’s not good in a macro sense when you’re in a recession.  And, as the quote notes (and I frankly think the number is low) when 60% of the economy is driven by consumption, increased savings and less spending is not a good sign.  It’s all about confidence, and consumers simply aren’t feeling it.

That may be because of the last sentence which has my vote for the understatement of the year. 

The good news, however, is there was nothing, apparently, “unexpected” about these numbers.

~McQ

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Coming government layoffs

Apparently the only jobs the massive "stimulus" may have saved, at least temporarily, were government jobs. Now, even those are in jeopardy as state and local governments are forced to deal with the reality of their fiscal situation:

Up to 400,000 workers could lose jobs in the next year as states, counties and cities grapple with lower revenue and less federal funding, says Mark Zandi, chief economist for Moody’s Economy.com.

[…]

Layoffs by state and local governments moderated in June, with 10,000 jobs trimmed. That was down from 85,000 job losses the first five months of the year and about 190,000 since June 2009. But the pain is likely to worsen.

States face a cumulative $140 billion budget gap in fiscal 2011, which began July 1 for most, says the Center on Budget and Policy Priorities.

While general-fund tax revenue is projected to rise 3.7% as the economy rebounds in the coming year, it still will be 8%, or $53 billion, below fiscal 2008 levels, according to the National Association of State Budget Officers.

And that means that states will not be able to afford some of the services or staff they presently employ.  And that, of course, means layoffs and even more workers seeking jobs.  While to this point, many state and  localities have been able to avoid layoffs by offering furloughs, that option is no longer viable for most.

And economic growth isn’t looking all that hot either.  Wells Fargo economist Mark Vitner is amending his third quarter economic growth estimate from 1.9% to 1.5%.

If this is a recovery, I’d hate to see a depression.

~McQ

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Observations: The Qando Podcast for 09 May 10

In this podcast, Bruce, Michael, and Dale discuss unemployment, Greece, and the BP offshore drilling leak.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.

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Observations: The QandO Podcast for 18 Apr 10

In this podcast, Bruce, Michael and Dale discuss the state of the economy, Tea Parties, and the Democtrats’ approach to politics. The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.

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Inflation: The Lurking Beast

Despite all the happy talk from the Fed about its ability to manage the money supply and wring the excess out of the economy at the proper time, avoiding inflation, when and if the economy ever takes off, is going to be a lot tougher than advertised. And we’re beginning to see rumblings that inflation is trying to find it’s footing:

Inflation at the wholesale level surged in November, reflecting price jumps in energy and other products.

The bigger-than-expected increase is certain to get the attention of Federal Reserve policymakers beginning a two-day meeting on interest rates.

The Fed has been able to keep interest rates at record-lows to bolster the shaky recovery, but if inflation pressures begin to mount, the central bank could be forced to start raising rates sooner than expected to cool the economy and keep prices in check.

That’s the trade-off: raise interest rates to hold off inflation. The tricky part is knowing how much to raise them to do that without killing the recovery. And, with the massive amounts of cash pumped into the system, I’m not sure that’s possible. Which means it is probable, at some point, that the Fed is simply going to have to make a choice – inflation or high recovery killing interest rates. My guess is they’ll choose the latter (while the politicians holler foul and try to spend more money). That’s why many don’t see economic recovery in the cards any time soon despite the “green shoots” so many politicians continue to spot among the economic ruin of the present economy.

~McQ

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