Monday, September 28, 2009

Economic recovery will take time

From the 28 September 2009 Greater Niagara Newspapers

By Bob Confer

Virtually the same cast of characters who missed the boat with their assessments of the economy prior to the meltdown of September 2008 is now guilty of issuing a lie just as damaging: Their belief that the recession is over and recovery is well on its way. The power brokers in Washington and Wall Street and the economists in academia and government cannot be trusted in this assessment for they either willingly chose to not believe in or were oblivious to the recession when it actually began in 2007. They were not in the position to properly assess the economy last year, so, obviously, one cannot believe what they have to say now.

There is nothing that indicates a speedy recovery is on the horizon. Earlier this year, President Obama’s advisers predicted that unemployment would top out at 9 percent. We’ve already gone beyond that (9.7 percent at last report) and plant closures and downsizings across multiple industries persist. It’s not a stretch to say that unemployment during and following this recession will peak at 14 percent. Even the President and crew have changed their tune to say it will hit “somewhere” in the double digits early next year. Nebulous comments like that speak volumes about the unknown into which we are venturing.

As that withering continues on the employment rolls the economy will continue to retract. With less consumers available, and those who do remain becoming even more conservative with their discretionary income (not knowing if it may exist in the coming months), the hope for a recovery is delayed. Who can the entrepreneurial machine sell to if the marketplace it knew just 3 years ago is more than 10% smaller by participants and over 35% smaller by purchasing desire?

Compounding this mess is the fact that it’s easier for an economy to shed jobs than it is to replenish them. In 2006 unemployment was near what some call a “full employment” level of 4 percent. To get back to that and add more than 10 million jobs will take years, maybe even two decades. Recent history shows that it took seven years starting in the mid-1990s to go from just over 6.7 percent unemployment to around 4.2 percent in 2001. That 2.5 percentage-point recovery is minute in comparison to the 10 percentage-point hole that our economy must overcome when this recession begins its recovery. And, this time around, things are different. As a general rule, factories and retail establishments were not permanently shuttered in the 1990 and 2001 recessions; jobs were cast aside temporarily and business went on almost as usual. But, in just the past two years alone, hundreds of thousands of businesses have closed for good, their assets, investments, and customer base gone. That said, to reclaim the jobs lost by this recession, businesses – and therefore jobs - will have to be created from scratch. In order such virgin growth to occur, a healthy economy – one that promotes the free-market - is a must.

Stifling that free market and slowing the development and redevelopment of jobs is the very thing that created the recession, the ongoing and unprecedented expansion of our government. It was the altruism of our government that forced lenders against their will to provide loans and mortgages to the unqualified who in the end proved unable to pay their debts, leaving every lender and ultimately every American on the hook. To correct the monster it created, the federal government has spent trillions on bailouts and oversight, creating a national debt that now totals $11.8 trillion and is expected to reach $21 trillion by 2019. To satisfy that debt, the government will have to greatly tax those who have jobs or create money out of thin air, sending the American dollar on a path towards worthlessness.

Unfortunately, too many people in the ranks of the unemployed or the underemployed are oblivious to this and are getting their hopes up based on false promises being delivered by the charlatans who oversee or analyze our nation. President Obama, the Federal Reserve, and economists everywhere would have them believe that their job woes will be over soon, that sometime in the very near future they will once again be collecting a paycheck and supporting their families. Sadly, the truth does not match such a dream. Rather, it is a living nightmare, and like most nightmares, this one started peacefully and has become something which one cannot escape until the sleeper has awakened. And this sleeping giant – our economy – has a long way to go before it does.

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