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August 23, 2009

The Recession Is Probably Ending

-- by Dave Johnson

I think that the recession is probably ending. This is a technical term, and people will not feel a change. But the "cliff diving" has ended. We have probably hit a "bottom."

This is due to a few things. First, you can't fall forever at such a fast rate. Second, you can only fall so far. Third, there are still millions upon millions of people with jobs who have to eat, buy some clothes, use phones, etc.

And, finally, the "stimulus" is starting to work, making up for a lot of the lost demand in the economy.

What next? Well that depends on a lot of things. There is no reason to think things will start getting better. And things will probably not get worse until the stimulus ends. But the restructuring of the economy didn't happen, bank regulations didn't change, concentration of wealth to the top still is occurring, trade laws still sap our jobs, and Wall Street still dominates with their incentives to sell every factory in the country at fire sale prices.

My prediction is that we will coast along for a while, the Fed will try to inflate another bubble in something, and then after a while the collapse will start again, from where it left off.

Posted by Dave Johnson at August 23, 2009 9:39 AM


Comments

Dude, the "stimulus" had nothing to do with stopping the freefall (only a fraction of it has actually been spent) - although the high confidence level people had in Obama probably was a significant factor. The real "stimulus" was the $12 trillion Bernake and the Fed poured into the economy last year to counter-balance the de-leveraging of credit. Something which is totally not repeatable.

What you're looking at is nothing less than a "dead cat bounce" (drop a dead cat from high enough up and it'll bounce). The second wave of ARM and Alt-A mortgage defaults (way bigger than the sub-prime crisis) hasn't yet really hit, the economic impacts of public employee layoffs and furloughs and paycuts, along with massive cutbacks in service levels and funding of NGO's and other social service program funding hasn't really hit yet either - the new budget year is just barely starting, and it takes a while for this to process through. We ain't seen nothing yet.

Posted by: Thomas Leavitt [TypeKey Profile Page] at August 23, 2009 7:46 PM

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