Well, its over,we got the word today Federal Reserve Chairman Ben Bernanke announce it, the Recession is “very likely over at this point.” Great News Right? Well maybe not. Before you take out the champagne and invite your friends over for a party understand that there is much more to the story.
Bernanke went on to say that we will have an under-performing economy well into next year
“From a technical perspective the recession is very likely over,” Bernanke said, cautioning that unemployment is likely to remain high. “It’s still going to feel like a very weak economy for some time, as many people will still find that their job security and employment status is not what they wish it was. So that’s a challenge for us and all policymakers going forward.”
The Fact is that some economists are predicting the notorious “L-shaped recovery”, in which the economy technically recovers but remains stagnant for years. Others dread the “double-dip recession”, where the economy falls, pauses, then falls even further.
The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession, says one of the few mainstream economists who predicted the crisis.
Speaking at the Sibos conference in Hong Kong yesterday, William White, the former chief economist at the Bank for International Settlements, also warned that government actions to help the economy in the short run might be sowing the seeds for future crises.
“Are we going into a W [-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised,” he said, referring to the risks of a so-called -double-dip recession or a protracted stagnation such as Japan suffered in the 1990s.
“The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.”
Already we have seen the signs, once again banks have stopped lending:
Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).
“There has been nothing like this in the USA since the 1930s,” he said. “The rapid destruction of money balances is madness.”
The M3 “broad” money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.
Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an “epic” 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.
“For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew,” he said.
It is unclear why the US Federal Reserve has allowed this to occur.
You will soon hear the President echo Bernanke’s statement (just the part about the recession being over). Truth is that our economy will be in trouble for a very long time, and the tax and spend strategy of our Democratic-party run government will only serve to extend it for a long time.