10A007 Recovery? by Jim Davies, 8/12/2010
Is the economic recovery stalling? Today the merchants of gloom adopted funereal voices and posed that question to tens of millions of their idiot-box addicts with the very clear implication that the answer is "yes." Yesterday the Dow dropped 200 points in response (they claimed) to some adverse statistic or other. So it was another golden opportunity to sell some more gloom, which has for long been the flagship product of the TV news industry.
Now, I'm not an expert. And almost all the experts completely failed to see this recession coming, and the exceptions (notably, the Austrian economist and investment advisor Peter Schiff) were carefully ignored by the gloomsters... even though they came laden with gloom. That was because they had a good rationale, and government-licensed broadcasters run pretty scared from reason. It upsets their audience, damages its faith in approved experts.
"Recession" is defined as three successive quarters of negative GDP growth, so "recovery" is a quarter or more of positive GDP growth. "GDP" is defined as the country's Gross Domestic Product, counting the services of government as one of the components of that "product" - at cost - even though nobody bids a price for them; so if government people were to dig and re-fill holes in the ground, GPD would rise. So what's being debated is so abstract as to be almost meaningless.
However, it seems to me that the Feds have for two years been doing exactly what caused the recession in the first place. Its cause (which no licensed broadcaster has yet admitted) was that money was printed at an increasingly furious rate and that some of it, naturally, found its way into the housing market. Greatly aided by government laws that compelled mortgage lenders to make unsound loans ("no-docs" mortgages) to people who had no visible way to repay them, prices rose. By the early 2000s, the annual price rise was higher than the cost of servicing the loan (eg, 10% vs. 7%) so it was easy for anyone to "buy" a million-dollar mansion by signing a promise to pay $70,000 a year when its apparent market price rose by $100,000 in the same year; the loan was simply rolled over into a new one, for $1.1 million. Then in 2008 something stopped the prices rising so fast (as with all Ponzi schemes) so the whole scheme unraveled. Then one of its primary promoters was elected President.
Ever since, he's been arranging for more money [sic] to be printed and distributed, just as if reason might be stood on its head and a poison become an antidote.
Of course the economy might recover! The capacity of this industrious, ingenious people is amazing. Despite all the obstacles put in our way, we might just manage it. But reason seems to me to point the other way. The good news is that if I'm right, the repeated government failure may cause a few more folk to question why it should continue to exist.