Today the "Leading Economic Indicators" came out for August 2009 and they showed a very slight improvement over the previous month. The economy has hit bottom and is bouncing, this is good news as I personally like a strong economy.
When all is said and done this "Recovery" will be regarded by historians as artificial because of the massive Government interference in the free market. I am not arguing that the interference was unwarranted, it was. Point blank the entire banking system would have collapsed worldwide within days. It probably needed to but I don't see anything good coming of that, "Gold Star" for the governments of the world....tight work.
This potential collapse of the banking system was the result of an easy credit bubble deleveraging. The only way to sustain the growth between 1990 and 2008 was with lots and lots of leverage.
So the US Government made liquidity available for banks and large businesses so that they wouldn't go under. I get that. What I don't understand is why they aren't writing off the losses that need to be written off in an ordered and measured fashion. The bubble still has to deflate. The only way to prevent the bubble from deflating is to blow a larger bubble. The Internet bubble begat the Housing bubble begat the commodities bubble. Each succeeding bubble requires more capital borrowed from future generations and this is only sustainable for a finite period of time. A Ponzi scheme can get only so large before every man, woman and child on the planet is a member of it and further growth is impossible, leading to it's collapse.
So right now we are borrowing growth from the future to finance such things as cash for clunkers, home buying credits, reduced payroll taxes, and the "stimulus" package. This is breathing life into the economy and we have bounced off the bottom. Good Times!
We really shouldn't, we should let the market have it's correction. It won't be fun and many people will be hurt, I would hope that we would spend some of the Government Largesse helping these people, but it needs to happen. We are going to spend our children's inheritance making sure the zombie banks of Citi, JPMorgan, BofA and Goldman Sachs can continue to not lend, loose buckets of money and pay obscene bonuses. Dismantle them and let them go under, they are no longer competitive. Where I'm from we don't reward businesses that make reckless decisions with taxpayer give aways.
Recessions aren't bad, they just are. They perform the necessary job of doing away with inefficiencies in the market place and lay the groundwork for the recovery. You cannot suspend the laws of economics, we are manipulating them right now but you can't cheat them. Business cycles are going to happen, if we push off a recession until later all we are doing is making it worse. This is the best example I can think of.....
Long before there were planes, helicopters, Federal Lands, Firefighters, and People there were Forest Fires. Because there were no people, when lightning struck a dry forest a Forest Fire would erupt. Some were small and I'm sure some altered the Seasons for the entire planet. It's not good or bad it just is. I'm not sure all Forests survived, some probably got burned down to the ground and that was it for them. Over the course of millions of years this dance played out again and again. There is no stopping this phenomenon only delaying it. We used to be under the impression that all fires were bad and had the technology to stamp them out immediately whenever they reared their ugly head. It turns out that we did nothing to help the forests but did them immeasurable harm and the brush built up and when fires did start they exceeded their historical proportions. The law of unintended consequences will get you every time.
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