Tuesday, March 13, 2012

Economy - Recession, Recovery, Recovered


 [image] There is a lot of talk about the economy having many positive signs... and that is true.  So why do so many people still feel like things are not so good?  It's all about how you say it.

The average Joe the plumber thinks in terms of good and not-so-good... and then there is the recent "recession" which was just plain bad.  But economists will talk about recession and recovery as if one is bad and the other is good.  The problem has been that because of the depth of the recent recession [declining economy for 2 or more quarters], the "3 summers of recovery" leave a lot of people thinking "not-so-good"... even if economists call this a recovery.
Real median household income is still 7% lower than it was in December 2007 and 3.9% lower than in June 2009, when the recession officially ended, the study says. Americans' income continued to fall in the recovery, Sentier data show, as more workers sought fewer jobs and many of the unemployed took lower-level positions to get by. [source]
So let's put it in some non-economic terms....  A marathon runner crosses the street on a bright sunny day and never sees the truck that hits him.  He wakes up in the hospital after a couple of years in a coma.  He can barely move.  After awhile, he begins to get his voice back and his memory is still fuzzy.  He notices that his body has shriveled noticeably and that he doesn't have the strength to get out of bed.

The doctors inform him that he has a long rehabilitation ahead of him, but don't worry because they have purchased the finest equipment available to help him out.  He won't recover any faster because of the extremely expensive equipment, but he will feel that something is being done for him.  He begins slowly.  First he has to learn to eat solid food again.  Pablum.  Then he is lifted to a wheelchair and taken to a wading pool where he will float, with assistance, for part of an hour.  He can learn to move his arms and legs there.

After a few months, he is able to stand next to some parallel bars and hold himself upright.  A few months later he is able to walk the length of the parallel bars unassisted, but he uses a walker to get around the hospital.  Several months later he is pronounced well enough to move to assisted living.  The staff is very helpful and try to do everything for him, but their efforts allow him to slacken his own efforts and his recovery goes slowly.  But he is in recovery they tell him.  Strangely, he doesn't feel recovered... he feels 30-years older. They tell him that recovery is a good thing and eventually he will be recovered.

Three years after he woke up, the marathon runner is still in recovery.  He is walking pretty well and now lives at home by himself.  His efforts at running are still pretty weak.  26+ miles is out of the question.  He can jog 2.6 miles, but he is in recovery.  There are plenty of aches and pains.  But he perseveres.  His lawyers say they can get him a lot of money for his ordeal so that he does not have to worry about anything.  They don't understand he wants to be self-reliant and while the money is nice, it doesn't make him whole.

Both the doctors and the lawyers tell him that they know best and he should just let them take care of his recovery, but he simply is not satisfied with recovery... he wants to be recovered.  He tells the doctors and the lawyers to get out of his way and let him push himself.  He is a world-class athlete and knows what it takes, but the doctors and the lawyers keep trying to get in the way.  They know best, of course.

We are in recovery... we are not recovered.

Back in early January, when Barack Obama was still President-elect, two of his chief economic advisers — leading proponents of a stimulus bill — predicted that the passage of a large economic-aid package would boost the economy and keep the unemployment rate below 8%. It hasn't quite worked out that way. [source]
February unemployment rate: 8.3%... after three years.  Maybe it's time for Obama to get out of the way.

2012 IS HERE


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)