Is the recession over – or just beginning?
By Lance Crossley
On July 23, Bank of Canada governor Mark Carney announced that the recession was coming to an end. On July 29, President Obama said things have gotten better: the United States had prevented a depression and this was the beginning of the end of the recession. On August 3, a Bank of Montreal economist said the U.S. recession will end in the third quarter. And on August 5, the front page of The Toronto Star declared “Economy on the Rebound”. Leaders, experts, and media have announced in unison that all is well with our economy.
What a steaming pile of horse doo-doo.
The facts tell a very different story. Everything hinges on the United States’ ability to generate growth but there just isn’t any credible evidence that will happen. Now that the housing bubble has burst, the next shoe to drop is the commercial real estate market. Banks have postponed this day of reckoning by extending commercial loans instead of foreclosing, but how long this can go on is anybody’s guess.
Unemployment is officially at almost 10 percent now. Unofficially, some reputable analysts have it at almost twice that figure because of the skewed methods the government uses in its calculations. Either way, unemployment benefits are running out for many Americans, with the New York Times reporting as many as 1.5 million jobless will see their benefits end by Christmas.
State tax revenues have experienced their biggest fall since records began 45 years ago. Virtually every state is insolvent, most notably California, which has had to make draconian cuts to avoid bankruptcy.
Railroad carloads, which carry goods and are an accepted reflection of economic vitality, are down 22.5 percent since 2006. Retail sales are slumping. Consumer spending is tightening despite government efforts to stimulate credit. Even the Bank for International Settlements, which acts as a global central bank, has warned that the fiscal stimulus packages are only a band-aid and will be followed by an “extended period of economic stagnation.”
Most ominously, countries like China and Russia are starting to show signs they will no longer support America’s debt by buying its government bonds and treasury bills. If this happens, the dollar will plummet and American standard of living will drastically fall, as everything they import will becoming significantly more expensive.
So why all the optimism about emerging “green shoots” in the economy? Their hope is largely based on the rise of stock markets, which have rebounded greatly since bottoming out in March. But this climb can be attributed to Federal Reserve Chairman Ben Bernanke, who has expanded the monetary base by $1 trillion with fresh money. This new money has not been directed into productive purposes; rather it has been channelled straight into tradable assets. As a July 16 Wall Street Journal article pointed out: “In other words, Ben Bernanke has been the market.”
Where is it all headed? I wouldn’t be at all surprised to see another stock market crash as early as this fall, following the end of the American fiscal year when the final numbers come through and investors can see the bigger picture. Even if that day is postponed, the economy’s cheerleaders won’t be able to hide the reality forever.