An 'X' Shaped Recovery 18 comments
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Will the economic recovery be enduring—V shaped? Collapse after a short time—W shaped? For the middle class, it may be none at all—an X.
By conventional wisdom, the housing bubble, credit crisis and collapse in consumer spending caused the recession.
With home sales rising, new cars flying off lots, and Wall Street profits soaring, analysts see an imminent recovery, but the economy is running on steroids.
About 90 percent of existing home sales are distress sales—foreclosures and homeowners in financial difficulties. New home purchases are juiced by the $8000 first-time buyer subsidy that expires December 1.
Summer car sales were pumped by cash for clunkers.
Regional banks are failing under bad commercial loans, and mortgage-backed securities purchased from Wall Street financial houses. In part, Wall Street posts big profits by shifting its debauchery onto smaller brethren, and the FDIC may run out of cash to guarantee regional banks’ deposits.
Clueless behavior by big players is frightening. Automakers are boosting production, assuming car sales will continue at their torrid summer pace.
Wall Street is planning big year-end bonuses instead of shoring up capital for a possible second dip in the recession. The backup may be a Broadway lyricist to pen “Bail ‘em out again Ben.”
Consumers, recognizing danger, stay away from the malls and seize what dollars they have.
The economy will be lifted by businesses rebuilding depleted inventories and replacing outdated computers and federal stimulus dollars. Those simply will not deliver annual GDP growth greater than 2.5 percent or many new jobs.
The stock market will rally with modest growth, because U.S. multinationals produce so much in Asia where growth is robust.
To Wall Street, the recovery will appear V-shaped, but for ordinary workers, it will be an X.
Unemployment will reach 10 percent, and stay there until President Obama stops obsessing about redistributing wealth by nationalizing car companies and health care and raising taxes on energy and the wealthy.
The country needs pro-growth policies—fixing the huge trade deficit and the banks.
Dollars spent on imports that do not return to purchase exports can’t be spent on American products. That saps demand for American-made products, keeps factories and offices shuttered, and idles workers.
The trade deficit is mostly oil and Chinese consumer goods. Export more, import less, or the economy flops.
Without bank credit, businesses can’t expand, entrepreneurs can’t create, and workers don’t work.
Obama dodges the toughest aspects of the banking morass. Compensation structures built on the too big to fail doctrine permit Wall Street to take huge risks, shift losses onto smaller investors and the government, and suffer too few consequences for their calamities.
Until those change, Wall Street bankers will be too busy chasing rainbows to adequately reestablish lines of credit to regional banks essential for business expansion.
Buy only as much as you sell, reasonable pay for honest work, and let the reckless fail.
Old time religion? That’s what made America great.
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Old time religion? That’s what made America great."
That's what I was taught too. Unfortunately, our President was raised at the knees of socialists.
Consumers are staying away from the mall NOT because they are "holding" dollars.
They are staying away because they have NO money and NO credit (or 30% credit that they rightly are avoiding using).
Our utility rates are up, our insurance (health, home, car) is up, our pre-packaged Chinese made food is way up. Yep, milk, bread and eggs are cheap; but most Americans can't cook. And our salaries, wages, hours are WAY down.
We are staying away from the malls because we are broke.
And NOTHING in this "recovery" changes that fact. And NOTHING coming out of Washington will alleviate the reality. If anything, what is set to come out of Washington will be the final nails in our non-union, non-government sponsored coffins.
Otherwise, great piece and thanks.
Dont expect that to change.
On Aug 24 08:51 AM The Geoffster wrote:
> "Buy only as much as you sell, reasonable pay for honest work, and
> let the reckless fail.
> Old time religion? That’s what made America great."
> That's what I was taught too. Unfortunately, our President was raised
> at the knees of socialists.
1. Consumer confidence must rise( and stay risen) discernibly
2. Substantial risk capital must flow into useful innovation so the wealth creating capacity of the US can increase
3. Credit must be available in much greater amounts and in much less onerous terms for solo, small as medium enterprises
At present, 90% of households are experiencing a frightening decline in BOTH net worth and after-tax disposable income, so consumer confidence is more likely to fall than rise.
The Govt. is more hostile to true risk capital and genuine innovation that at any time in US economic history: the Govt is causing a reduction in the systemic wealth creating capacity of the Nation. It is this capacity that drives high quality and enduring growth because only from this capacity can companies generate revenues and profits, hence jobs and incomes for consumers.
The Govt andWall St have created a suffocating credit (quantity and cost) environment for solo, small and medium businesses, which continue to fail in great numbers; since these businesses create the majority of jobs, the bad credit environment engineered by bad Govt policies means a bad job creating environment for consumers.
We are an optimistic people, so it is natural to discuss possible recovery profiles and manufacture evidence and statistics to reinforce our optimism. It is more realistic and useful, unfortunately, to debate the next phase of the Great Contraction. Deeper decline, not recovery, are more plausible for the next 15 to 18 months.
"The country needs pro-growth policies..."
You are right!
Small business is hurting badly, yet this administration (and the last one, and congress) seem to be fixated on the health care "crisis", bailouts, cash for trash subsidies, and other bandaids. Meanwhile the only thing they seem to be doing for small business - or even medium - is to come up with new ways to tax them.
Reagan was right about one thing - government is the problem, not the solution.
Deserves repeating.
On Aug 24 09:10 AM TeresaE wrote:
> While the gist of your article is sound, I take exception to one
> fallacy that you are helping the banks, government and MSM spread,
> "...Consumers, recognizing danger, stay away from the malls and seize
> what dollars they have...."
>
> Consumers are staying away from the mall NOT because they are "holding"
> dollars.
>
> They are staying away because they have NO money and NO credit (or
> 30% credit that they rightly are avoiding using).
>
> Our utility rates are up, our insurance (health, home, car) is up,
> our pre-packaged Chinese made food is way up. Yep, milk, bread and
> eggs are cheap; but most Americans can't cook. And our salaries,
> wages, hours are WAY down.
>
> We are staying away from the malls because we are broke.
>
> And NOTHING in this "recovery" changes that fact. And NOTHING coming
> out of Washington will alleviate the reality. If anything, what is
> set to come out of Washington will be the final nails in our non-union,
> non-government sponsored coffins.
>
> Otherwise, great piece and thanks.
On Aug 24 12:08 PM PseudonymName wrote:
> Old time religion? That’s what made America great.
>
> Deserves repeating.
On Aug 24 08:51 AM The Geoffster wrote:
> "Buy only as much as you sell, reasonable pay for honest work, and
> let the reckless fail.
> Old time religion? That’s what made America great."
> That's what I was taught too. Unfortunately, our President was raised
> at the knees of socialists.
Layaways are up.
The newly laid off are charging up cards they will never pay off.
My customers phones aren't ringing BUT the owners ARE amassing personal credit card debt to try to keep it afloat until "recovery."
And yet, sales are tanking at retailers. "Better than expected" does not hide LESS SOLD.
But, apparently it does to people like you.
One graph from the St. Louis Fed is your "proof."
Mine is Main St USA. Try living there, you won't like it much.
On Aug 24 12:14 PM thiazole wrote:
> The data would disagree withy you: research.stlouisfed.or...
>
Measure the DOW, wages or real estate in ounces of gold for a true measure of any recovery. That will be the honest marker.