Sunday, August 23, 2009

The great debate...

The great economic debate of our time seems to center on the type of recovery we will see in the US - V, W or L?

The argument in favor of a V shaped recovery seems to centered on the fact that the stock market has soared recently. Beyond that, there is very little evidence supporting a sharp snap back for the economy.

Remember that confidence has exploded without any real change in the fundamentals:

"A net 75 percent of survey respondents believe the world economy will strengthen in the coming 12 months, the highest reading since November 2003 and up from 63 percent in July. Confidence about corporate health is at its highest since January 2004. A net 70 percent of the panel respondents expect global corporate profits to rise in the coming year, up from 51 percent last month."

I've been arguing for some time that this recession was different and the recovery, when it comes, will be unlike anything we've experienced before. I agree with the sentiments of Dr. Krugman, that while the data will show us emerging from the recession in 2009, the lack of jobs is likely to dampen consumer sentiment and spending for years to come.

"We've got a problem with terminology because we usually say either the economy is in recession or the economy is recovering. Either you're in hell, or you're in heaven. And the trouble is we're actually in purgatory.

We're actually in a situation almost for sure GDP is growing; almost for sure the business cycle leading committee will eventually decide that the recession ended this summer. But almost surely also we're still losing jobs. The unemployment rate is going to continue to rise. So we're in that infamous jobless recovery state."..."What we have now is a whole lot better than seeing the end of the world six months down the pike, but it is not good enough - or even remotely good enough."

Interesting articles from the weekend........

Recession leading to accidental entrepreneurs

Analyst sees another 150-200 banks failing this year

American Airlines to charge $50 for second bags on Int'l flights


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