Instead of asking if the recession is over, what we should really be asking is, what has changed? What has given us our new lease on life?
Trillions in stimulus and bailout money may have helped in the short-run, but we are only trading short-term gain for long-term pain.
In reality, we have only made the speculative imbalances that lead to the housing bubble worse. We are only setting ourselves up for something much worse. If things do get better, and it appears they might(on the surface that is), it is only because we are in the eye of the storm.
The underlying fundamental problems with our economy still exist, and much of what the government is doing is making them worse. Basically, easy credit is what caused the housing bubble, and the dot com bubble before it. Artificial booms are inevitably followed by recession, in short, recessions correct the problems that caused the artificial boom. Interest rates were artificially low, and speculative imbalances caused home prices to soar beyond any value actually grounded in reality...so instead of letting interest rates rise, and letting the price of these over-valued homes drop, creating an equilibrium grounded in reality...the government's solution is to lower interest rates and prop up home prices. Sort of like those brilliant people who think you can cure a hangover by drinking alcohol.
Any attempt to resist letting the recession happen only furthers the speculative imbalances and malinvestment that lead to recession. Like with the dot com bubble, Greenspan responded by lowering interest rates, which flooded the economy with easy credit...which in turn lead to the the imbalances which caused the housing bubble.
Similar to the recssion after WWI, the Fed responded by flooding the economy with credit...which is of course is why it was 'the roaring twenties', but it also lead to the great depression. To quote Mr. Greenspan himself:
When business in the United States underwent a mild contraction
. . . the Federal Reserve created more paper reserves in the hope of
forestalling any possible bank reserve shortage. The Fed succeeded;
. . . but it nearly destroyed the economies of the world, in
the process. The excess credit which the Fed pumped into the
economy spilled over into the stock markettriggering a fantastic
speculative boom. Belatedly, Federal Reserve officials attempted
to sop up the excess reserves and finally succeeded in
breaking the boom. But it was too late: . . . the speculative imbalances
had become so overwhelming that the attempt precipitated
a sharp retrenching and a consequent demoralizing of business
confidence. As a result, the American economy collapsed.
The
Besides sending these false signals to the economy, everything the Obama administration is doing is counter productive. Cap and trade, just adds burdensome tax and regulation, making everything more expensive...the overhaul of health care, should it pass, will only add to a growing budget deficit, which the the WH predicts will be $9 Trillion over the next decade. Creating liquidity('printing money') taxes an overburdened citizenry through inflation.
And then there are the fundamental problems with the economy that have been building for decades now. Foreign investors buying trillions in US debt for decades now has made us practically immune to normal market pressures...We have a negative savings rate, yet we are the largest consumers in the world. This lack of market pressure has allowed our economy to drastically change over the past few decades...At the peak of US economic power, we flooded the world with cheap manufactured goods, yet still paid the highest wages in the world, and we were the worlds largest creditor...now our economy has made a drastic shift to a mostly service based economy, which produces little exportable goods. The result is, we have become dependent on foreign manufactured goods, and run a trade deficit to the tune of a $1 trillion a year. We cannot continue to borrow and spend forever, and when we are cut off...our economy faces painful restructuring.
In short, with a public debt of over 11 trillion dollars, a figure closer to 60 trillion(or as high as 100 trillion depending on the source) if you include unfunded liabilities, a $9 trillion budget deficit over the next decade, a $1 trillion annual trade deficit, a negative saving rate, and ballooning credit card debt...it is becoming increasingly more evident that the US economy is in very big trouble. And no matter how much the government tries to outsmart the market, they just can't do it...and once it all comes crashing down,our perverse interpretation of Keynesian economics will be exposed for the sham it is.
As to whether or not the rescession is over...the answer is...we never let it happen, and that's the problem.
