Saturday, December 5, 2009

Has A True Economic Recovery Actually Begun?

Right off the bat, I can tell you that I don't know.  I've been as skeptical as anyone and said so in prior blogs.  However, it appears POSSIBLE that we indeed are in the very early stages of some sort of recovery.  But, the evidence remains a mixed bag.  In addition, it's WAY too early to speculate as to how strong that recovery might become, if it's started at all.

On the positive side, a website called Shadow Stats (, which calculates various government-reported statistics and adjusts them for a variety of misleading alterations, has shown an actual slight "downtick" in the unemployment rate.  Now, one month doesn't make a trend, but it IS the first time they show a drop since late 2007.

There is also the persistent strength in the stock market, which has historically led recoveries by 6 to 12 months. The stock market bottomed 9 months ago.

Another very reliable leading indicator is the money supply, which, thanks to Fed chief Ben Bernanke, has been exploding.  Historically, high rates of growth in money supply have led to economic recovery within a period of between 6 to 18 months.  All of the emergency stimulus and bailouts, which have caused the growth in money, began  within the terminal months of the Bush administration, so they fall within the reliable historical precedent.

In addition, yesterday I became aware of a new program offered by certain banks of mortgage relief - EVEN FOR THE UNEMPLOYED!  This was reported in an article by the Sacramento Bee, ironically titled "Mortgage relief program helps relatively few troubled homeowners".  An unemployed friend of mine spent two hours talking to Wells Fargo, the holder of his mortgage, and found that this was indeed true.  They went over his financial condition meticulously.  They couldn't pre-qualify him for any immediate relief, but they are sending him a package requesting certain documents from which they can verify the information and consider the merits of his request.

Now, for the bad news!  Retail sales remain DISMAL  On "Black Friday", the day after Thanksgiving, one of the two most heavily trafficked shopping days of the year, Sacks reported a 26% DROP in year-over-year sales.  Macy's and J.C. Penney also reported greater than estimated slides of about 6%.  We don't yet know about Wal-Mart, as it has stopped reporting monthly sales statistics altogether!   But, this bad news may be somewhat offset by some good news in online sales, which were UP 11% year-over-year.

According to the FDIC, six more banks were seized on Friday, with combined assets of $13.4 billion.  And, as pointed out in recent blogs, the fortunes of states and municipalities continue to deteriorate.

So, the "recovery" theory remains quite speculative as the evidence is a mixed bag.  However, I suspect that we will know the answer relatively soon. More evidence will arise after Christmas.  Anecdotally, I know that most of my friends have, at most, a "token gift only" intention this holiday season.

Finally, the REALLY bad news is that any recovery is merely more evidence of a precursor to a vastly heightend level of inflation.  Without exception, history shows that the "growth effect" of stimulus programs precedes the subsequent "price effect".  And, as the "growth effect" tapers off, the "price effect" accelerates.
Therefore, we are sowing the seeds of an even greater crisis which is yet to be experienced.

I hope you found this essay useful, interesting and informative.  I appreciate the rapidly growing readership and the questions, which I am delighted to answer.

Marko's Take


  1. I guess it depends on what one calls a recovery. If it's a recovery to the statistics of the consumer driven 'bubble' economy, then sure, maybe there's a recovery. If it's a restoration to a real value based economy, then there's no possible way we're observing a recovery. I completely agree with you that govt monkeying is sowing the seeds of greater crisis.

  2. Holly, even since the article was written, I'm now starting to lean a bit more to the "no recovery" position, however, it's too early to really assess anything until after Christmas.
    I have a strange hunch, that we HAVE seen the bottom in housing. Why? Inflation! I think that there will be a window when home values actually DO appreciate before interest rates rise, but again that's just a hunch.

    Thanks for reading and your comment.


  3. I think there is a big difference between a 'paper' or 'ledger notation' recovery and a 'personal' recovery.

    The pundits can say all they want about 'recovery'. I still contend that the 'personal' recovery from all the millions of people affected by the bank failures, mortgage crisis and loss of jobs will take, AT A MINIMUM, 5 years to dig out of, if they ever will. And, I'm trying to be positive here!!!

    So, while the 'economic esperts' discuss the 'recovery' while having dinner at a steak house or sipping a cocktail at a CNN party, 'The Truly Affected' can only look on and hope that at the age of 45, they will once again be able to move out of 'Mom's' house and build a life of their own. (Sarcasm intended!)


  4. Peter:

    From my perspective you are absolutely right!

    One of the problems I have with this so-called "recovery" is exactly the mis-reporting by the media pundits you refer to!

    In all honesty, the media is so unreliable that I can't believe a word they say.

    Thanks again, for you thoughtful response.



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