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Has the Recession Really Ended?

Posted by Larry Doyle on July 26, 2010 11:25 AM |

In the course of a discussion this past week, I made the point that I do not believe our economy has ever truly come out of the recession which officially began in December 2007. The National Bureau of Economic Research (NBER) is responsible for measuring the start and end dates for economic contractions and expansions. Why is it that the NBER has never officially declared an end to the recession? Interesting, very interesting.

On this topic, a good friend shared with me a fabulous piece which addresses our current economic health and the major hurdles for our future economic growth and prosperity. This piece, Quarterly Review and Outlook by Hoisington Investment Management in Austin, TX, addresses these hurdles in forthright, layman’s fashion.

I strongly encourage readers to take the ten minutes necessary to scan this research piece. The ‘sense on cents’ provided by Hoisington will clarify a lot of the daily noise and nonsense circulating throughout our nation.

What exactly are the high hurdles on our economic track?

1. Deficit spending is crowding out private enterprise while the government expenditure multiplier is somewhere between zero and one. What does that mean? Ongoing and increased government stimulus spending is providing little to no bang for the buck.

2. The prospect of higher taxes will also crimp economic activity with the tax multiplier ranging between -1 and -3. What’s that? If the multiplier is merely -1, then an increase in taxes of $1 trillion over ten years will have an equally incremental negative impact on economic growth.

3. Massive over-indebtedness and accompanying deleveraging will continue to promote excess capacity across a wide array of our nation’s real estate (factories, residential, commercial, et al). We need a real transfer of assets from the banks to private hands. This is not currently happening to a meaningful degree.

4. The Federal Reserve has less juice to provide and fewer mechanisms to manipulate to provide real economic support.

What is the overall result? An ongoing lack of velocity in our money supply leading to continued deflationary trends. Not exactly a pretty picture for our economic landscape, and this after a full two and a half years since the recession officially began.

Take the few minutes to review the Hoisington letter. It is an education unto itself, and will provide real insight as to why the NBER has likely not indicated that our economy has officially come out of recession.


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