Every day we see new headlines or hear news reports touting the end of the recession, or the bottom of the housing market, and we watch the stock market climb to new highs for the year. Does this mean the worst is over? Is it time to get back to the business of earning a living?
Don't bank on a recovery just yet. If my answer to the above question is NO, then some will discount my opinion as being just the voice of one more “doomsayer.” However if I join the crowd and begin singing “Happy Days Are Here Again,” I’ll have to do so by ignoring the facts.
Sure, the politicians want us to believe that their unprecedented spending binge has actually worked and that everything is “hunky-dory.” But it just ain’t so.
Let me tell you why I believe the recession hasn’t ended as announced. And while we may see an uptick in the GDP in the final quarter of this year, we’ll be coming off a bottom that has in many sectors been the worst in decades, so any improvement will look good on the surface.
• There are estimates that we’ll have more than 300 bank failures before this crisis is over. And while most of the pieces of those banks will be absorbed by “healthier” banks, their loss will continue a liquidity problem for small businesses that were dependent on relationships with those failed banks.
• Credit card issuers have removed more than $1 trillion in available credit which will continue to burden consumers and small businesses which depend on the cards for much of their credit.
• Unemployment continues at record levels. Weekly unemployment claims increased by about 15,000 for the week ending 8/15. Continued high unemployment means that millions of former consumers can’t consume—they won’t buy cars, clothes, appliances, or homes—and, in fact, they will add to the continuing foreclosure and credit crisis.
• Commercial real estate values have declined by as much as 35%, with a 50% decline predicted before the recession ends. This places additional burdens and balance sheet problems for banks already struggling under the weight of defaulting construction, development, and mortgage loans.
• It has recently been reported that more than 13% of all mortgages were either in foreclosure or were delinquent in Q2, and the numbers are growing. While some areas have seen a surge of investor activity purchasing many of these homes, investors expect to re-sell and make a profit. It’s just impossible for the market to absorb the number of homes on the market. And with several million foreclosures yet to come, prices will remain depressed in most areas.
• Taking a look at the big picture, there are currently 78 million “boomers” reaching retirement age, and the government is not prepared. Paying the Social Security and Medicare benefits to this group will cost the government TRILLIONS, while the removal of tens of millions from the workforce will reduce tax receipts by tens of billions. Medicare and Social Security unfunded liabilities currently total $107 TRILLION, yet the government is ready to add trillions more in programs that also cannot be funded. With a workforce reduced by 78 million, the tax burden will have to dramatically increase on the remaining workers.
• It has been estimated that within the next two decades there will only be about 3 people working for each person receiving Social Security, whereas there are currently about 5. That leaves but two options: increase taxes or reduce benefits.
So, if the news is this bad, how can “experts” and politicians proclaim the end of the recession? Well, it seems that it has ended for a few, and for the politicians it’s the only group that matters. Big business has benefited from the government’s infusion of trillions into the financial system, and the big banks, recipients of billions in TARP funds, are already singing a happy tune. Then you have the Wall Street firms who are eager to replace those nasty derivatives that were an integral part of the financial collapse, and who are already making plans and investing in opportunities to trade billions in the new green energy credits. Their stocks are soaring.
Yes, the recession is over. It’s over for the fat cats on Wall Street, the bankers who’ve been ignoring their customers, the lobbyists who are pumping hundreds of millions into DC, and the politicians who think that the only way out of debt is to spend OUR CHILDREN’S’ MONEY.
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