About half the people here seem to think we can return to the “economy” of the last two decades. I disagree. I am with the other half who think that until and unless we have a shift to building what we consume, there will be no recovery.
However, the government seems to be doing everything it can to bring on a significant devaluation of the US$. This seems like a bad thing but I believe it will be our salvation.
No amount of whining, threatening or government rules will stop jobs from moving out of this nation as long as transport of good is cheap and labor somewhere else is 5% of the cost here. The one and only thing that will return jobs to the US is for our labor to be on a par with other nations. The only way this is going to happen is if our over valued money takes a drive.
When “everyone” has been GLOBALIZED.
More hours-less pay
No 401K match, no retirement benefit
Higher insurance copay- if available
This will be for the LUCKY ones.
A “reinflated” recovery may be already beginning, at least the stock market shows signs of thinking so. If the Fed is successful in reinflating the economy then we will be fooled once again into thinking we can have our cake and foreign cake and our retirement cake all without having to save a dime.
A real recovery? It took the last 20+ years for the average American (and plenty of foreigners) to consume their future 20+ retirement year’s goods and services via debt financing and believing in bubble (inflated) stock market/housing values.
The real recovery will begin when the Fed stops recreating money/credit bubbles. When will that be? I don’t know, but so far the Fed doesn’t show any signs of understanding the real problem.
I think a lot depends on how one defines “recovery.” We will hopefully never return to the “boom years” we just enjoyed. Then again, the most recent boom years were nothing but a paper shuffling scam.
Mike of Redwood city made an interesting point, although perhaps not the one he sought to make: “…Government will provide more than 100% of economic growth this year, and most of it will be infrastructure, health, energy, and education…”
A number of economists have said similar things. The problem, however, is in your very statement: “…Government will provide…” The government can’t provide anything that it doesn’t take from its citizens in taxes. As such, the government CANNOT “provide economic growth.” All it can do is take something from the (shrinking) economic pot and redirect it.
Additionally, most of the industries you mentioned are service industries. Service industries provide services for other businesses and consumers (who are employed by those other businesses). The industries you mentioned grow when the general economy grows and demand for their services increases. They, themselves, are not engines of economic growth.
The above logic is quite prevalent in economics and business, however. Service industries will save the day. Well, service industries must have an economic backbone to be based upon. We’ve offshored a good portion of our manufacturing backbone, and it looks as though one of our largest manufacturing companies (GM) may go bankrupt. Its bankruptcy is even being encouraged by the same financial vultures who helped enable the mess we’re currently in.
I’ve said it before and I’m saying it again now: there will be no true recovery until this country begins to increase its production of tangible, value-added products. Until then, any “growth” is nothing but a sham.
Sorry to double-post, but …
It’s important to avoid confusing housing prices with recovery. Falling housing prices are helping the greater economy. For many years, people were trading affordable homes with small, cheap mortgages for monster homes with huge, expensive mortgages (often with much higher interest rates). The expenses for principal and (mostly) interest payments sucked the life out of the real economy for the past few decades. Now, we are reversing this process with people moving back to smaller, cheaper mortgages (often with much lower interest rates). In some cases, the houses are the same model down the street or even across the street, but at a fraction of the price. The lenders and investors don’t like it, but they’re very rich and the borrowers are not.
This renegotiation is going on across the country, and it’s great for the economy, redistributing wealth back from the rich to the poor. It also frees up consumer spending for better purposes than principal and interest to finance companies.
Low housing prices are much better for the majority of Americans, we need lower cost housing, and it’s coming.
Watch the stock market. If people are selling on “panic” they are being stupid, because more than likely they are selling short and are getting pounded in the sale. If the investors would stop trying to second guess the next investor, hold their ground, the stock market would quit this up one day, down the next. Usually only the first few who sell are the winners, so stop selling.
Also a word to the investor in the stock market. Why do you think the retail market is having so much trouble? Because the arm chair investor is trying to second guess the market and pulled all the capital (cash) out of the companies. Of course the companies are in trouble. They haven’t had to get loans from banks because they get their cash from the stock holder. So the investor has just made sure the company fails by selling all their stocks.
Over the years I’ve been collecting these meaningless predictions from analysts like Mr. Gary Hager’s: “I don’t think the other shoe is dropping. The economy is going to sputter up the hill. We were operating on one cylinder in January and maybe now we’re operating on three”!!!
What in the world does that mean?
Quite frankly, you may find better forecast and advice in fortune cookies.
One day I may put all these gems together in a comical book.
I wouldn’t dare to try and answer today’s quiz as I’m afraid I would pretty much sound like these well-paid boneheads.
Instead, I’m going to make Mr. Mark’s (from Bartlett – Illinois) words my own.
Have a great day everyone!
I do not think the economy will recover. I think we are headed for the worst economic collapse in world history.
Stocks still haven’t had the “20 years of growth” priced out of them—and this will happen even if all indicators remain flat. Trouble is that all of this is happening when our [and others] currency is collapsing—so “yey, stocks are going up” is actually “oh, dollars are becoming worthless.”
Hagar says the “last gasp” of this downturn will be the bankruptcy of GM? I disagree, it will be the beginning of the Depression that is at our doorstep. Job loses will accelerate, foreclosures will accelerate, defaults on all kinds of loans will accelerate, it will turn a bad recession into the next great depression, and Obama and his administration will get to take the credit for it, and the responsibility of causing another million plus good paying jobs lost. Obama talks the game of wanting health care for all, then orders one of the largest private providers of health care to reduce or eliminate health care for those who have worked their whole lives and retired on the promises of pension and health care. Obama talks the talk, but does not walk the walk when it comes to caring for “working middle class americans”. How many AIG employees have lost any of their pay or benefits? No JOBS, no recovery, it’s that simple.
The economy will recover by 2012, but many americans will not feel it. We will never return to the ez-credit days of 2002-2007 and the country will be better off in the long run. Some jobs will never return.
The consumer is tapped out. Between jobs going overseas (limited income raises), retirement of the baby boomers, underwater mortgages, unpaid credit cards, auto loans, student loans, it is going to take a long, long time for the consumer to repair his balance sheet. I’ve never been in favor of big socialist govt, but President Obama is correct: there is no other game in town.
The road will be rocky, very volatile. In over 100 years of modern societies, no Govt has successfully run an economy. This time will not be different. I’m thinking by sometime in 2012, things may begin to turn around. But by then, will run-away 1920s Weimar Republic/1970s hyperinflation return? Will our debt burdens become exponentially worse?
The biggest question is: How in God’s name are we going to pay for this Govt $10T stimulus? And who will be able to take away the punch bowl when things get out of control?
I believe that far too many equate stock market performance with the general economy.
Until we see a steady 3 month consecutive decline in the 1st claims for unemployment, stability in housing prices and a trend to reduction in housing inventory – now at 12 month levels – and finally, increased lending by banks to small businesses – we will see no measurable rebound. When it DOES happen, I believe it will be a long and relatively flat recovery – not the rebound that so many naive people seem to expect.
My guess is that these elements will start to come together in mid to late 2010.
I tend to be bullish and optimistic but I don’t see much more than a “pause” in the recession 4Q 2009 as defecit spending filters through the system and nets a 1-2% gain in GNP. I think we are headed for another dip in the 2nd half of 2010 into 2011. A stronger recovery isn’t in sight until 2012 and even then it will be subdued by high taxes, excessive regulation, and high interest rates. Unemployment peak at 14% 1Q 2012 and above 6% until the end of next decade. Full recovery, as in getting back to the good times we were used to, is 10-15 years away.
On the bright side, investing in a secular bear market is very simple – just go in after a 20% dip and sell after a 20% gain. Rinse and repeat, over and over again. 
3rd quarter of 2010 will be the return of the bull market. We are leveling now and may see a small glimmer of hope EOY 2009.
Until this time, all the indexes must get realigned and working together again.
Just make sure the banks and insurance firms PAY US BACK for bailing them out of sure demise.
Good article … and good question !
The economy will start to recover around the end of this year, maybe earlier, when the ARRA Stimulus Program begins to kick in. Otherwise, there is very little growth in the economy.
The stock market will probably start to recover (remember, it’s still down for the year now) around the middle of this year, 6 months before the economy does so.
The road will be rocky. The biggest problem is that business (capital) spending has dropped to almost zero. While the consumer is hanging tough and doing much better than business, the second biggest problem is that most Americans have few or no savings and many have lots of debt. It’s cultural: most people here spend everything they make (and then some, in many cases).
Government will provide more than 100% of economic growth this year, and most of it will be infrastructure, health, energy, and education. Maybe next year, too.
All said, we’ll make it.
The ecomony will recover when the big banks, who should have been left to fail, stop sucking all of the life out of consumers with increased interest rates and descreased credit lines.
Untold billions are disapearing into Chase, BoA and Citi in the form of higher monthly payments on credit cards. These are the folks the government wants spending again and they just can’t do it as long as they are being called on to bail out the zombies.
Bank of America earned $16 billion last year in atm fees and that’s just the tip of the ice berg.
Don’t hold your breath. All the gimmicks they tried have failed and so will this latest one that Obama introduced. The only way to recover is to bring back manufacturing. To build and sustain a wealth of a nation you need 3 very impotrtant entities: manufacturing, mining and farming! There is no other way! All you experts that I watch on TV are wrong. Dead wrong! It is is like stupid advising an idiot and a dummy analizing the 2.
How rocky is the road to recovery? Try boulder sized rocks. When will it recover? That depends on what economy you are talking about. The working peoples economy, the manufacturing economy still has not recovered from the reagan/bushI Depression of 1980 to 1992 with its double digit unemployment, inflation and interest rates coupled with savings and loan failures.
The banker economy is doing just fine, thank you, due to the workers and taxpayers in this country. jamie boy dimon, blankfeln, etc. are still enjoying multi billion dollar paydays and seem immune from criminal prosecution. A whiny trader, named jake de santis, wrote an op ed in the New York Times a couple of weeks ago crying how people are just sooooo mean thinking he does not deserve his million dollar bonus at AIG. He still received it and is not headed for jail yet.
The economy will recover when we value efforts and resources appropriately. It will occur when people who produce real goods and services are valued and compensated more highly than stock traders, real estate salesboys, marketeers and fluff merchants. As long as the foundations of the economy are b.s. vehicles like structured finance and inflating the price of houses, there will be no real recovery, only a series of bubbles. We cannot all survive as manufacturers reps or product managers or whatever the term du jour is for salesboys trying to pretend they are more important than the Joneses from the McMansion next door in the development. The economy will not recover by each of us buying products from Malaysia or China or Thailand, inflating the price with a load of hot air then reselling to each other. Businesses need to quit being run by a bunch of drunks on golf outings making social connection. The results show it.
“Give me a trillion dollars and I’ll show you a good time too!”
That supposedly was once said by Warren Buffett, the Oracle of Omaha.
He might well have added “in the short run only, of course!”
Please see http://www.moneyweek.com/investments/the-strange-bond-boom.aspx for that quote.
What long-term self-sustaining recovery can we expect from the little ‘party’ we are now having that our kids and their kids are going to be paying back for with their hard work for their entire lives?
Of course things are going to look up for a while. You can buy a good time in the short run with more Debt-based consumption. A trillion dollars can buy a lot of party balloons. But the last thing we need now is more Debt.
Will this ‘recovery’ magically really become self-sustaining? This IMHO is only delusional thinking on the part of The Federal Reserve and on the part of the Treasury. Our ‘experts’ have deluded themselves into thinking that not enough ’stimulation’ was brought to bear (in a timely enough fashion) on the Great Depression by the ‘experts’ back in the 1930-s. They are going to do things ‘better’ and more expeditiously and more expediently.
So not to worry — our current ‘experts’ are smarter. What hubris! What ignorance! We will learn the ‘hard way’ that we know no better and no more. IMO we know even less.
What everyone seems to be praying for is:
“Dear Lord, please give me just one more artificially-FED-induced, debt-based, consumption-driven, binge-spending, BUBBLE, and I promise You that I won’t throw away its ‘blessings’ this time!”
But a credit implosion caused by a collapsing Debt Mountain cannot be FIXED with MORE Debt.
Debt-based discretionary consumer spending is the road to economic (and social) hell, especially when it is only facilitated by FED-injected, helicopter-dropped, Ben Bernanke-blessed, modern-invention-called-the-printing-press-created ‘money’.
It was the same road to hell that we took from 2001 to 2008. Now we are getting our autos out of the ditch and revving them up to go down that same road, only 10 times faster!
We should know better by now. History has many lessons that show that such money injections can ultimately only lead to misery.
Our Central Banks (most especially The Federal Reserve) have been creating artificial bubbles for so long, that this is all they seem to be able to do. They create the booms and the busts and then come back to us and tell us that they will save us from the busts. What temerity! What arrogance! What fraud!
Our Central Banks do a disservice to savers. But most importantly they fail to recognize that by favoring debt-based spending over saving for such consumption (that is, we should save before we buy) our Central Banks undermine our economies in the long-run.
Their actions cause a failure of the needed slow accumulation of savings and capital that are required to move our economies forward. Such muddled Central Bank thinking and actions (making money far too ‘easy’ for borrowing) does usually ’stimulate’ in the short run. But such money-printing only brings growth forward in time, at the expense of future growth. It is always so, even if the inevitable slowdowns are temporarily forestalled. The Austrian School of Economics has been teaching this principle for more than a hundred years.
No amount of printed money (“created from thin air”), or lent money from banks, or borrowed money of corporations, which is NOT backed up by REAL savings of people and companies in society, can in actuality lead to real sustained growth with real jobs. Printed money is really only indirect taxation of those who have cash balances in savings. It only causes a redirection of resources that would have gone somewhere else. Nothing ‘extra’ is created with such printed money.
Aggregate demand is boosted in some sectors at the cost of other sectors and other times. That is what we did over the last 8 years and then we got the current slowdown. Now we are going to repeat THAT process?
Personal choice has been abrogated by the actions of these undemocratic institutions. There is no ‘outside’ when it comes to the economies of the world — all such ’stimulation’ comes purely at the cost of stealing resources from somewhere else in the economies of the world (or from our kids’ futures). It is a shell game played by charlatans and sadly it manages to fool most of the rest of us most of the time.
Even now as Ben Bernanke’s easy-money actions in America may succeed in creating some growth, it will be at the inevitable cost of future growth. That future growth will necessarily be inhibited. IMO it won’t work this time, because too much such past stimulation has already exhausted that future-growth source-well. Too many bad investments have been made, and too many ‘future’ houses and automobiles have been purchased. Too much Entropy (i.e., physical and financial disorder) has been created in the Economic and Financial System. It is payback time.
Beyond this, there is the moral question of why we are making Debt-Slaves of the generations that will follow us. How can they ever forgive us?
Imagine if a time traveler could go back to 2001 and warn Greenspan not to spin more of the green stuff by dropping rates and making money ‘easy’.
What pain we could have avoided.
Now we are going to do the same in spades? We cannot steal such growth from the future with some magic plan to then boost our current real growth. It cannot happen. The past and the future will NET out. It may even be worse. The future growth may suffer more than a simple netting-out calculation might suggest. Our future time-traveler is yelling to us from the year 2015 “please desist from what you are now doing!”
How can you delay SAVING to ’save’ the Economy now, and then auto-magically start SAVING at some undetermined future date? This is witchcraft and muddled wishful thinking. The President is correct to want saving. But there is no advantage in waiting. Besides it is infeasible to spend now and save later.
There will be no economic or social tomorrow without SAVING now — at least not one that is to be envied. We may be creating the conditions for war and other misfortune, as history so many times has witnessed through the well-meaning actions of those who say “we need more money in the system NOW”. John Law proved around 1720 in France that this approach can NEVER work. And it can lead to revolution and more economic depression.
Do we really think that the Paradox of Saving can be avoided to save the Economy?
The only way to avoid this Paradox in the future is to make sure overall saving in the Economy never again drops to negative levels. That would lessen these severe busts and booms. We’d get a sustainable, but slower, growth rate.
In the first place the FED should NEVER have engaged in Social Engineering to induce people to spend money they didn’t have. The FED has to start focusing on maintaining the value of money. As it is now, we will both debase our currencies and lose out on economic growth. This is medieval thinking — no, I will take that back — the medieval thinkers were not that stupid. Maybe John Law was, or maybe he was ‘forced’ into it. You can read up on him and decide for yourselves.
The FED created the conditions we have today. They created the conditions where we even HAVE TO WORRY about the Savings Paradox. The Federal Reserve has been doing this since 1913. It created the Great Depression and then made it worse. It is doing the same now. It has always done the same. It is not independent. It is even more harmful in its actions than the short-term thinking of its political masters might indicate.
http://en.wikipedia.org/wiki/Paradox_of_thrift
http://en.wikipedia.org/wiki/John_Law_(economist)
We cannot fix the unfixable.
Let’s just resolve not to get into this hole again (assuming we get out).
By the way, IMO the current ‘depression’ is unavoidable, since our individual and collective Balance Sheets have gone into such FED-induced disrepair. It will take a long time for those entropically-challenged Balance Sheets to be repaired.
The current FED (and other Central Banks) and Federal Governments are prolonging this recovery process. Instead of a 2-year depression we are likely to have a 10-year depression, with some periods when things occasionally look rosier but are in reality not.
Beware of those who promise paradise through more “Quantitative Easing”. That is only a euphemism for melting away the value of your money.