Posted on 01/14/2010 5:43:27 PM PST by blam
The Tepee Shaped Economic Recovery
Economics / Economic Recovery
Jan 14, 2010 - 11:49 AM
By: Michael Pento
The shape of this economic recovery will not be in a “V”, as many pundits have promulgated, but instead may be the inversion of that letter…which will unfortunately look much more like a tepee. The upcoming downfall will surprise most investors who have been tricked into believing that a government can print and spend their way into prosperity.
Undeniably, there has been a superficial recovery in the economy, which was presaged by a 65% rebound in the S&P 500 since March of 2009. Third quarter GDP was positive—albeit at a subpar and marginal 2.2%—and Q4 of 2009 and Q1 of 2010 should also show positive economic growth as well. But most of that growth will come from an inventory rebuild and not from a sustainable increase in output.
But let me explain why this recovery will severely underperform those of previous recessions.
First we must realize what has previously led the economy out of a recession. It has historically been consumer spending accompanied by a recovery in the housing market. But we never had a nation-wide bubble in real estate before this previous period.
After a bubble bursts, it takes decades before the asset in question can return to its former highs—and that’s without adjusting for inflation. For example, look at the gold market in 1980 and the NASDAQ market in the year 2000.
The gold market didn’t return to its nominal high until 2007, some 27 years after its bubble burst. And the NASDAQ is still more than 50% below its former high of 10 years ago.
Therefore, if the nature of bubbles also applies to the housing market, we cannot count on real estate to lead the economy out of a recession. Evidence of the continued weakness in housing was displayed by last week’s release of pending existing home sales, which dropped by 16%!
Many economists also believe that the consumer will spend us into a viable recovery. They are mistaken here as well. Household debt as a percentage of GDP was “just” 46% back in 1983—that was the last time the unemployment rate was 10%.
Today household debt is 96% of GDP. That’s correct; consumers have more than twice the level of debt as they did during the last serious recession. Can they be counted on to pile on more debt at this juncture? I think not.
[snip]
Have no fear, 0’s going to solve the problem by legalizing 20 million illegal aliens. Imagine the wonders that will do for the labor market.
0 has no experience running a anything.
No CSPAN for meeting because you can run a meeting by teleprompter.
His handlers have based on his off teleprompter
gaffs kept him on a tight leash. Especially, no press conferences. Hopefully he will go down in history as
‘an idiot, full of sound and fury, signifying nothing
... And then is heard no more’
Too bad Carter didn’t get the second part of the plan.
$3 gas and higher heating bills aren’t going to energize consumers in my town.
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