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On the Brink of Economic Recovery

Economics / Economic Recovery Aug 10, 2009 - 02:28 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleEconomist Paul Krugman and Obama's economic adviser Laura Tyson claim U.S. Economy May Be on Brink of Recovery.


The U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, said Laura Tyson, an adviser to President Barack Obama.

“We may have hit stability, we may be in the beginning of an upturn” based on the latest economic data, Tyson, a member of the White House’s Economic Recovery Advisory Board, said yesterday during an interview in Kuala Lumpur. Nobel Prize- winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.

“It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, maybe September,” Krugman said in a separate interview in the Malaysian capital. “My guess is that we’ve bottomed out now, that August was probably the trough month.”

There’s no reason for a second stimulus package now, Tyson said in the interview. She suggested on July 7 the U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small.” She told CNBC three days later that it’s premature to plan for a second stimulus package.

“We know that relative to plan, the stimulus package in place is performing along expectations,” Tyson said yesterday. “Right now, based on the evidence that the economy has put forward and the stimulus spend out relative to plan, there isn’t any reason to think about a next round.”

Krugman Thinks Stimulus Round Two Needed

In contrast to Tyson, Paul Krugman argues a second stimulus is still needed. Please consider U.S. Economy May Have Reached ‘Trough,’ Krugman Says.

The U.S. economy is stabilizing and may have bottomed out, as the government’s stimulus plan probably saved a million jobs, Nobel Prize winner Paul Krugman said today.

A second stimulus package for the economy is still needed, and should be directed at state and local governments as well as infrastructure spending, he said in an interview in Kuala Lumpur. The world economy may face several years of weak growth without falling into a “double-dip” recession, he said.

“It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, maybe September,” Krugman, 56, said. “My guess is that we’ve bottomed out now, that August was probably the trough month.”

The Princeton University economist said Federal Reserve Chairman Ben S. Bernanke “has done a really good job” to contain the financial and economic crisis.

“He failed to see this coming and he was behind the curve in early phases,” Krugman said. “But he’s been really very good in the sense that it’s really very hard to see how anyone could have done more to stem this crisis. He’s earned the right to a second term.”

Krugman said in June the U.S. may emerge from its downturn by September. In a June 9 speech, he said damage from the U.S. recession may persist “for a very long time,” with no clear engine for renewed growth.

Bernanke Should Be Fired

Bernanke never saw this coming then had a panic attack of various alphabet soup measures attempting to prevent another "Great Depression".

About a week ago Calculated Risk wrote "I'd like a doctor who never gave up trying for a cure, but I'd prefer someone with better diagnostic skills."

Indeed.

Praising Bernanke now is like praising a doctor for nearly killing your son because he finally guessed right on the fourth guess (in this case assuming that the right medicine has finally been prescribed, which is debatable).

Bear Stearns collapsed. Did the world end? Lehman went bankrupt. Did the world end? If Citigroup went under would the world have ended? I think not but I cannot prove it. Nor can Bernanke or Krugman prove the world would have ended had Citigroup gone under.

Campaigning For Fed Chairman


In an unprecedented move, Bernanke is clearly campaigning for reappointment. Please see Bernanke Goes On Self-Promotional Media Blitz for details.

It is equally clear that Janet Yellen, president of the Federal Reserve bank of San Francisco, and Larry Summers, Director of the White House's National Economic Council for President Barack Obama, are campaigning to replace Bernanke.

The correct solution of course is none of the above. We need to abolish the Fed and its serial bubble blowing tactics entirely.

Keynesian Clowns Want To "Make Sure"

If the economy has bottomed, pray tell why is a second stimulus needed? Just to make sure?

Keynesian clowns always want to make sure. Then when the stimulus fails anyway, which it will, the clowns will blame it on failure to "Make Sure".

Easy To Praise Keynesian Clowns When You Are One

Krugman has high praise for Bernanke. The reason should be clear but it probably isn't. The reason Krugman likes Bernanke is that Bernanke is willing to throw money at problems just as Krugman would do.

It's easy to praise Keynesian clowns when you are one yourself.

Bernanke (in misguided praise of himself), and Krugman (in misguided praise of a fellow fool), both think Bernanke saved the day.

I think they did nothing of the kind. However, the debate cannot be proven no matter what happens from here on out.

Perhaps Armageddon was not coming no matter what silly measures were taken by Bernanke. Indeed I claim that Bernanke's measures will drag this mess on for another decade, just as happened in Japan.

My claim can only be verified 5-10 years from now. Bernanke and Krugman have a distinct advantage: Their claim can never be proven or disproved given their inevitable fallback excuse "we failed to stimulate enough".

The Seen and The Unseen

The "seen" benefits (prevention of Armageddon) may be a mirage. Financial Armageddon may come anyway, or it may not have come regardless of what Bernanke did. After all, social safety nets are vastly different now than in 1929!

And while most have their party hats are celebrating the "recovery" now, others are asking What Growth is the S&P 500 Pricing In?

Right now we know that the jobs picture still sucks, that credit card defaults are still rising, that bankruptcies and foreclosures are still rising and the budget deficit is out of control.

Furthermore, we can easily see the massive $14 trillion balance sheet of the Fed while the benefit is debatable. The "unseen" is the massive set of problems down the road unwinding the Fed's positions. Those consequences are without a doubt coming down the road.

Presuming we are indeed "On the Brink of Recovery", what PE are you willing to pay given the recovery has not even started, yet we still face the seen and unseen consequences at highlighted above?

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

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