It’s official?

Worldview Item of the Day

The National Bureau of Economic Research, a non-partisan, private group of economists who track trends in the economy, has declared that the United States has been in a recession since December 2007. Their claim is based on the decline in payroll numbers in every month since then.

Traditionally, a recession is defined as two consecutive quarters of negative growth in the Gross Domestic Product, a condition which has yet to occur according to any reliable source of measurement.

The NBER joins a long line of agencies, organizations, and individuals who have jumped the gun and cried wolf when there was not one. Certainly, the economy is weak right now, and I believe the last two quarters of 2008 will reveal the US economy to be in formal recession, but the tendency until this point has been to dramatically overstate the nature of the weakness and its likely effects.

I say this because, apparently unlike a  lot of other people who pay attention to the economy, I seem to have a broader perspective on the US economy as a whole. I do not deny that the US economy is weaker than it has been in past years, but frankly, I deny that we are in “the worst economic crisis since the Great Depression”.

Look at the facts. The US economy has shed millions of manufacturing jobs, yet to date, US unemployment, the magic number used by the NBER, remains well less than 10 percent. Even if one factors in that those unemployment numbers are low, which one has to then do for any unemployment number anywhere in the world, the US still leads the world with the number of its citizens employed and, therefore, paying taxes.

Meanwhile,  The stock market has handed back several trillion dollars in value, yet the US GDP has only contracted 0.5 percent. Interest rates remain at historical lows below 6 percent. When adjusted for inflation, the value of basic commodities like food and fuel remain ridiculously low.

When taken in perspective, the current economic crisis is nowhere near as severe as the problems the US faced in the late 70s and early 80s, which themselves paled in comparison to the Depression. The current US economy is weak, not fatally wounded, and all signs indicate that by the middle of next year, even if a major employer like GM has to file for bankruptcy, the economy will have returned to its former strength.

I believe that what all of these things really show is that the US economy is finally adjusting to its new configuration as a technology economy after twenty years of fighting with itself. Further, I believe that the economy is shedding the weight of the almost unbridled avarice of two decades of investing and financial management that rode our current unprecedented wave of prosperity and growth that spawned things like Enron executives having parties with prostitutes in Greece and auto executives paying themselves millions in bonuses while their companies were failing. I believe that the economy is doing what it always does in times of excess: it corrects and heals itself.

The test of all of this will be what is happening by this time next year. If I am right, the economy will be chugging along again with growth in the 1.5 to 2 percent range. Unemployment will have dropped below 6 percent and maybe even as low as 5.5 percent. And, all of this will have happened in spite of as much as $2 trillion in extra government spending and a single year budget deficit growth larger than $3 trillion.

Of course, I could be wrong, but from my perspective, that is not very likely.


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2 Responses to It’s official?

  1. djhitz says:

    Are we ready for socialism? In 1960, Nakita Kruschev, Premier of Russia, banged his shoe on the table of the UN council and said something like socialism (then communism but at that time the Soviets had to know that there was no money in communism, after all it was the Union of Soviet SOCIALIST Republic) would “bury us”. A while back, I thought I’ve have the ability to fight this. I’ve grown older and weaker, like the economy. I need your help, Worldviewers. Resist the governmnt from protecting us from ourselves. Too much regulation is bad. In the end, who is going to protect us from the wrath of impending socialism?
    Ya, we shed manufacturing jobs alright. We gave them to China, Taiwan, Mexico and India among others. NAFTA, anyone? (North American Union (NAU), anyone?) Who’d have thought, we had enough money and jobs and resources to share with the rest of the world? We in North America suck up 80% of all, consumable product. Now we have to cut back whether, we like it or not.
    Louis Rukeyser, host of Wall Street Week cut back by only having 15 tailor made, suits, made per year to his usual 30. He’s also retired since then. You haven’t seen John McGlaughlin retire yet.
    You can’t compare our current recession to the 1930’s depression at all. We now have way more better real estate than we did then with much better HVAC systems. There’ll be no standing over a burn barrel with cut off finger gloves in freezing cold for me. No, no, we’ve too many nice warm buildings.
    Even Honda and Toyota wouldn’t buy out the “big three”. I hear Honda can change there production model line in five minutes. US auto corps. are worhless to the companies who actually want to make economical (not comical) cars. Make up your own jokes (if there are any) about UAW. Take the buyout. Await consultant status.
    Don’t forget about Ken Lay’s $8000 a month Peru resort. He dodged his indictment down there? He died a few months after his sentence. Talk about a man who gained the whole world and only our, Maker is sure where his soul resides.
    “Gee, is there anybody (with a job) that didn’t realize the recession announcement all year? Does America have to get the official, happy word from Betsy Stark, ABC World News Tonight? She, I’m sure incidently, she makes more money than all of us to repeat things other people say. Oh, gee! What a hard job (sarcasm). I wish she’d shut up. It’s easy to be optimistic, when your getting, paid well. She tells us, were screwed with a smile on her face. (“She can tell you about the plane crash with a gleam in her eye!” Dirty Laundry=Don Henley)
    Remember the 6% unemployment statistic is only for people who’ve signed up with unemployment agencies. How many immigrants, legal and illegal, homeless and drug dealers are on that figure?
    Why also must we blame the “bottom dropped out economy” on an 82 year old, bald man with age spots (Alan Greenspan)?
    It’s clear our economy is in the pitts because our government like its citizens like to borrow money until, we couldn’t possibly pay it back (to what country?) in our lifetime. Is this why, we carry, life insurance? Better buy some, quick.
    Saving money to America is like 60% off at Kohl’s which will be increased 10% more if you apply for their credit card. If you would happen to cancel that account, call it in before you cut up the card otherwise, you’ll get charged for their promotions. (Learned from experience at Sears). The 1-800- number’s on the back.
    What’s in your wallet? It’s none of my business. Or, is it? In God We Trust. I have a picture of Jesus in mine. I’m asking Santa Claus for a new one this year.
    “Happy Christmas, Worldviewers”! Remember what got you here, thus far. Spend wisely this holiday season. Just to remind you, what saving money is. It’s taking money and putting in the bank and not spending it at all. In the 70’s, we used to save money to go Christmas shopping with. We’d actually pay cash for our gifts. Isn’t that a noble concept?

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