Recession's End Offers No Crystal Ball

by John M. Curtis
(310) 204-8700

Copyright Septembre 20, 2010
All Rights Reserved.                                

             Conservative economic forecaster, the National Bureau of Economic Research, announced with little fanfare Sept. 20 that the nation’s worst recession since the Great Depression ended in June 2009.  NBER’s finding comes as a surprise to individuals unable to find jobs, retailers unable to move goods and homeowners upside down in mortgages and unable to sell real estate.  Technical definitions of recession involve two quarters of negative growth, an actual drop in Gross Domestic Product.  With Congress passing former President George W. Bush’s $687 billion Toxic Assets Relief Program Oct. 3, 2008 to supply liquidity to insolvent financial institutions and then passing President Barack Obama’s $787 billion Economic Recovery and Reinvestment Act Feb. 14, 2009, nearly $1.5 trillion was placed into circulation leading to the technical end of the recession in June 2009.

            Massive government spending, driving the National Dept. and federal budget deficits through the roof, helped the current paltry 1.6% up-tick in GDP growth.  While some economist fear a double-dip recession, Federal Reserve Chairman Ben S. Bernanke believes GDP will continue to rise, though slowly.  He and his Federal Open Market Committee are slated to meet Sept. 21 to debate monetary policy, already at rock bottom with the federal funds rates at zero to a quarter-of-a-percent.  Bernanke sees sluggish growth into the foreseeable future, prompting continued low interest rates and new strategies to stimulate economic growth.  Insiders at the Fed know they’ve run out of tricks and now depend on Wall Street to lift the country to economic growth.  Unemployment remains at 9.6%, a painful reminder that NBER’s statistics don’t translate into private sector jobs.

            Obama showed proper caution not letting NBER’s report get to his head, admitting “people are still struggling.”  “I need everybody to go back to your neighborhoods, and your workplaces, to your churches, and barbershops, and beauty shops,” said Barack, speaking to a Black Congressional Caucus Sept. 18.  “Tell them we have more work to do.  Tell them we can’t wait to organize.  Tell them that the time for action is now,” hinting that the economy is far from out of the woods.  After spending nearly $1.5 trillion, the economy still remains on shaky ground, with the U.S. dollar getting hammered overseas.  Faced with unappealing prospect in the November midterm elections, Obama seeks to put a favorable light on economic recovery.  He knows that NBER’s recent announcement about the end to the current recession only goes so far for run-of-the-mill voters.

            Democrats know they’ll have hell to pay at the polls for a continuation of the economic downturn inherited from Bush.  They also know that the economic mess is now Obama’s to fix.  His sluggish approval ratings directly relate to bad economic news.  NBER’s report helps Barack to the extent that it marks some progress or vindication of the government’s aggressive attempt to reverse the worst recession since the Great Depression.  Rise of Tea Party, anti-government, candidates around the country demonstrate the anti-incumbent mood sweeping the country.  Tea Party candidates advocate the old Reagan adage of “reversing the size of the federal establishment.”  Yet without massive government intervention in financial markets by Bush and Obama, the country would be stuck in a protracted recession.  Whether present trends continue is anyone’s guess.

            Economists and the U.S. Treasury under Treasury Secretary Tim Geithner and at the Federal Reserve know that Wall Street, not more government stimulus, must lead the way to economic recovery.  Since passing financial reform July 16, Bernanke and Geithner hope that Wall Street can continue its upward trend, handing publicly traded corporations enough cash to begin adding jobs.  It remains to be seen whether Obama’s landmark financial reform did enough to discourage hedge and private equity funds from shorting the market.  Fed and Treasury officials hope that the days of Wall Street excesses, including wild speculation in derivative markets by the nation’s biggest banks, is over.  Bernanke and Geithner also know that they must do more to keep the current market from heading south.  No single factor for economic recovery is more important than a rising stock market.

            Announcing an end to the recession back in June 2009 makes no sense to the unemployed struggling to find jobs.  With the government’s economic stimulus programs running out of cash, questions remain about the durability of GDP growth.  Rising commodities, especially gold, hitting new highs suggest that investors don’t believe in the current economic recovery.  Gold typically varies inversely with the stock market.  Today’s rise in gold indicates a lack of confidence in Wall Street’s upward trend.  Bernanke and Geithner have more work to do figuring out how to keep unregulated hedge and private equity funds from short-selling.  European central bankers are trying figure out the same thing.  Keeping stock markets rising on both sides of the Atlantic assures that publicly traded corporations can continue adding jobs needed for lasting economic recovery.

About the Author    

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.