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Hoping for an Impossible Recovery   September 6th, 2011
Day to day fluctuations will not translate into recovery       


More observations...

The economic news from day to day is like reading a schizophrenic reporting of reality.

Markets engage in a triple-digit rally because Hurricane Irene wasn't as damaging as hyped. Or pundits claim that a strong month of car sales are driving away fears of a double-dip recession (even though the same article indicates such spending is unsustainable with high unemployment). There is celebration in the markets when second quarter housing prices come in higher than expected despite the fact that there are millions of homes either in or near foreclosure, and despite the fact that the second quarter's sale prices were actually down year-over-year. Some days the market goes up because, allegedly, investors are thinking Europe isn't as bad as was thought. Other days the markets are down on "renewed concern" over Europe's situation.

By reading economic news, one would think the economy is slowly moving away from the financial crisis of 2008.

The truth is that absolutely nothing is changing in our economy on a day to day basis. Whether it be a tsunami in Japan or a hurricane on the eastern seaboard--or even an earthquake in Washington DC--nothing has changed economically in any significant way.

In fact, the only change since September 2008 is that things have gotten worse.

Our federal government is closer to bankruptcy, as are many of our states, counties, and cities.

Our unemployment rate is higher than it was when Obama was elected, and appears to be going higher.

We have millions of homes in or near foreclosure, and many which are abandoned and falling into disrepair, yet construction companies continue to build new homes.

Obama's stimulus failed to create jobs. So did QE1. And QE2. The Keynesian's are out of tricks.

Even as Social Security enters deficit territory we've created a new unfunded entitlement with Obamacare.

Around the world, individual debts became too much so they were unloaded on banks. The debt of the banks then became too much so they were bailed out and unloaded on the taxpayers. And now sovereign debt is too much and countries are collapsing and the United States has been downgraded.

The reality is that what the unemployed feel--that the recession never really ended--is completely true. Sure, it may have ended from a strictly statistical measure of GDP. But employment never recovered and--just as importantly--the root causes of the financial crisis have never been addressed.

We're not just going to wake up one morning and find that the economy has gotten better for no apparent reason. A month of good car sales or a quarter of increased home prices are just blips on the economic radar. As long as we continue to ignore the fundamental problems in our economy, there's no need to get excited about occasional good economic news. It's nothing more than statistical noise.

The state of our economy will not significantly change until we change our economic policies.

Instead of trying to prevent housing prices from falling, we need to let them fall and find their bottom. Instead of stopping foreclosures, we need to foreclose on homes as quickly as possible and get it over with. Instead of pumping up the stock market with QE1 and QE2, we need to let the market find its true value. Instead of trying to convince consumers to spend more money to spark economic activity, we need to encourage them to complete the process of deleveraging and fixing their balance sheets. Instead of getting in the way of corporate bankruptcies, we need to let those companies fail.

None of these things will be pleasant, but they are absolutely necessary before there can be any expectation of a true, solid recovery. And since none of these policies will be implemented as long as Obama is president, it is extremely unlikely there will be any recovery before he leaves office.

Until then, we're simply hoping for an impossible recovery.

Recovery doesn't need to be impossible. But it is impossible given the policies of President Obama.

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