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The U.S. Economic Recovery Is Producing Surprises

Economics / Economic Recovery Jan 20, 2012 - 09:57 AM GMT

By: Sy_Harding

Economics In 2008 it was a sure thing the bursting of the real estate bubble, the collapse of the sub-prime mortgage market, the freeze-up of the banking system, the ravages of the ‘Great Recession’, collapse of the auto industry, bailout of mortgage- insurance giant AIG, bankruptcy of General Motors and Chrysler, etc., would wind up with the economy in the next Great Depression.

It was then a sure thing that the massive stimulus and bailout efforts would not work, and the costs would bankrupt the country and drop it into third-world economy status.

There was no chance the banks or the U.S. auto industry would ever pay back the bailout loans. The assets the Federal Reserve was also putting on its books to help the banks clean up their balance sheets, by exchanging Treasury Bonds for some of the toxic assets on the books of banks, was just further money down the drain.

The way the banks seemed to be using the bailout loans to expand, buying out competitors, expanding into Asia, rather than using it to make loans, was going to make the ‘too big to fail’ problem even worse for the future.

Even since the recovery began, it has been derided as just an illusion, as could be seen by the housing industry still being mired in depression-like conditions, and no progress being made in the terribly high unemployment situation.

Sometimes it seems we’re so focused on the negatives that we haven’t noticed the unexpected positive surprises in the recovery

For instance, how many realize that most of the government loans made to the banks and auto industry have already been paid back, with interest.

Or that the U.S. auto industry has bounced back dramatically. Global auto sales recovered sharply in 2011 and the U.S. led the way, with sales up 9.2%, topping even the 6% auto sales growth in China.

Yesterday it was reported that General Motors has bounced back from its bankruptcy three years ago to a degree that it has regained its crown as the top-selling car-maker in the world.

Meanwhile, the Federal Reserve is making surprising profits on many of the assets it put on its books in the bailout process, $79.3 billion in 2010, which it turned over to the Treasury. And it recently estimated it made another $76.9 billion on those assets, and the Treasury bonds it bought in its two rounds of quantitative easing, and will be turning that profit over to the Treasury Department for 2011.

Regarding the employment picture, we sometimes forget it was a global ‘Great Recession’ and the rest of the world has also been struggling to recover since the recession ended in 2009.

In that struggle the economic recovery in the U.S., as anemic as it has been, has apparently been leading the way.

The Financial Times reported on Wednesday that manufacturing employment has grown faster in the U.S. than in any other leading developed economy since the start of the recovery, and has added more net manufacturing jobs since the start of 2010 than the rest of the Group of Seven developed countries put together. Only two other major economies, Germany and Canada, have increased factory employment at all.

That’s not to say that the employment situation in the U.S. is great, still 2 million jobs below pre-recession levels. But it is apparently heading in the right direction and recovering better than most of the rest of the world.

The fears that the financial industry was going to wind up even more in the realm of being too big to fail in the future, are also potentially turning out to be unfounded.

Banks closed operations and laid off 230,000 employees in 2011, and estimate another 220,000 lay-offs in 2012. Almost every week brings news of a major bank selling off or closing a division. Just a few days ago it was that CitiGroup is selling its consumer operations in Belgium. A few months ago Bank of America sold its stake in the China Construction Bank. Both giant banks have been cutting back drastically, and recently Bank of America told regulators it may even downsize further by retreating from some parts of the U.S., possibly selling branches and operations in a reversal of its aggressive expansion of the previous 15 years.

Putting it all together, the U.S. recovery from the recession not only continues, but has been producing some unexpected results and surprises that were certainly not foreseen three years ago, not the least of which has been a substantial bull market that has the Dow 95% higher than three years ago.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


g kaiser
20 Jan 12, 23:40
american economy

The American government and the FED have been so secretive and have been lying so often, that I find it difficult to believe anything of what they say. Anything!

You might be right that there are some unexpected benefits in America, but look at GM. They are maybe doing better than what they did, but a large portion of their sales are phoney. They count stock as sold when it leaves the factory, even if it sits on the dealer floors. That stock has been steadily rising since their "rescue". It seems that even the local investors have caught on to that, GM's shareprice has been falling in Dollars, even more in real terms. And, don't forget, that regaining the position as a top seller, in any event, does not in this case mean anything. This position has regularly been awarded GM even into the first bankruptcy. Lest you forget!

As for the addition of production jobs, maybe, that is another figure "massaged" by the establishment. Even if there is an improvement, which I doubt, then each job has been paid for with untold amounts of dollars, maybe millions!, each job!!.

The government has not yet seen sense, the banking system is not reformed, the American people is less free, more are on food stamps, (1 in 6) in the USA!!. And worst of all, the debt situation, which was the culmination that sparked this issue is even worse today than in 2008, on every conceivable account.

Wall street has recovered, certainly the most obese of the fat cats have, but the country has not, and will not, until there is a decision to deal with the greed, corruption, fascism.

There is though a strange sense of optimism among certain investors at the moment, based on selective truth, statistics and lies. And is carried on by propaganda and sweet talk from the state and its sycophants. It does not make it fact, it just makes it dangerous. We have seen it all before, the way to the event is not a straight line, although the direction of the path is.

A credit bust of epic proportions is simply unavoidable.

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