We are living in interesting times. It’s almost impossible to separate the domestic outlook from the world outlook, but, by the same token, there so much turmoil globally, that there is a lot of opportunity.
I keep hearing people, including seemingly reputable newscasters, disagree with economists, census officials, Bernanke, etc.. when they state that the recession ended a year ago. Let’s talk about the definition – we can’t have a reasonable discussion if we don’t share the same definition for words that are key to the argument. “Recession” is the process of the economy getting smaller, or worse (like my hair line). When the talking heads say that the recession ended some time ago, that does NOT mean that everything is “all-better” – it means that, overall, the economy has stopped getting worse.
For instance unemployment, which is a key indicator, dropped from 10.2% in late 2009 (peak) to 9.4% in December 2010, to 9.0% in January 2011. This indicates that unemployment has stabilized and has been getting marginally better. It does not mean that it is back below 5% like it was 5 years ago, it only means that it isn’t getting any worse. GDP has also stopped getting worse and has started to grow. To quickly achieve a recovery in unemployment, a huge jump in GDP would be required and, although great in Fantasyland, would lead to an even greater recession or depression on the other side. Steady private-sector growth is the only way to sustain a long-term recovery, and we are currently on that road.
I also hear people qualify the improvement in unemployment numbers by stating that it doesn’t include the people who have given up trying to find work. OK… Let’s personalize this a little bit. If you lost your job tomorrow, or maybe you are currently unemployed, can you imagine coming to the point where you just throw up your hands and say, “Oh well… I can find a job… I guess I’ll just stop looking.” and apparently spend your time doing crossword puzzles or something? No, you can’t. Unless you are (1) independently wealthy, (2) don’t want a job because you live “off the grid”, or (3) have started your own entrepreneurial business. In any of these cases, they shouldn’t count against unemployment. The rest of us have responsibilities to our families and need to generate the income to put food in their mouths and a roof over their heads.
In a nutshell, the recession is over and we are in the process of recovery. What are the biggest dangers, currently, to the continued recovery? Out of control government spending, growing state & local budget deficits, and the muni-bond market.
In the posts that follow, I will expand upon these issues so that you don’t have to sit here and read War & Peace.