Britain may have already escaped the recession, according to the leading think tank National Institute of Economic and Social Research. The economy may have actually grown by 0.1 per cent in May following a similar increase in April, according to estimates released on Wednesday by NIESR, a well respected economic body. "So far as we can say, the recession is over," said Martin Weale, director at NIESR. This is the most concrete sign yet that the economy, as measured by its gross domestic product, may be improving sharply after a dismal few months. Some feared the economy could suffer its worst year since the Second World War, but the NIESR report follows evidence that the housing market may have hit the bottom and that factories have started producing more goods. The think tank measures the economic output on a monthly basis, compared with the Office for National Statistics, which measures it once a quarter. NIESR did warn that there was a chance the economy could dip again. – UK Telegraph
Dominant Social Theme: Whew! Sure glad it's over.
Free-Market Analysis: We think this downturn has a ways to run. But we have seen a number of articles recently that qualify in our opinion as a kind of "happy talk." They focus on one number or report or another and then leap to the conclusion that the particular green shoot qualifies as a sign of recovery.
Central banks in our opinion have made all the wrong decisions throughout the West, especially in Britain and America. The bailouts aimed at preserving the financial system have instead preserved a bubble. Don't hear a lot of talk about a banking bubble? Yes, the West is over-banked with kiosks, branches and cash machines literally on every corner. Central banks will likely do ANYTHING to maintain their distribution channels.
If banks collapse, central bank credibility begins to come into question. People gradually figure out that there is something wrong with the monetary system itself. Much better to flood the system with liquidity. This does several things. It props up the banks first and foremost. But second, it emphasizes that banks are the go-to distribution element when it comes to generating an economic resurgence.
Central banks pump money into the banking system to bring back the economy – that's certainly the rhetoric. And it yields to agonizing measurements of just how much of that money is being lent out into the real economy. As part of their civic duty and their brief, central banks continue to jawbone money center banks to do more. Thus it is that electronic money (trillions and trillions by now) begins to find its way to some degree into securities. (Banks won't lend but they may generate investments.)
More is needed than a rising stock market, however. Businesses must start to hire and to provide paychecks. If the worker has more money in his or her pocket, then consumer spending may energize the economy, or that is the hope anyway. Employees must consume to combat the downturn.
Wouldn't it be easer simply to cut taxes? Put the money directly in the hands of those who can make purchasing and investment decisions? When Ben Bernanke was asked just this question at a recent Congressional hearing he looked surprised and said in effect that it was not the mandate of the central bank to do such a thing. Central banks only distribute money to other banks, he indicated. It's up to the money center bank to provide the larger economy with money-in-circulation.
The meme that Western citizens are meant to adopt is that banks are the single arbiter of free-market endeavors. But banks throughout history have been money warehouses, nothing more or less. It is the entrepreneur with ideas, the individual with a group of family and friends about him or her, who builds a business. This only makes sense from a banking perspective. Bankers quite naturally want to see their industry shine. Good for banks but not people.
Western governments have propped up their banking sectors and they have printed trillions. Thus the wretched system of boom-and-bust hangs on. The business cycle itself is elongated. Mal-investments are not fully purged. In fact, it is hardly a hallelujah moment to yet again defend the banking system from the cleansing it needs. The idea that green shoots are to be seen as result of monetary inflation and industry interventions is wrongheaded. What is nascent is only more misunderstanding about what constitutes a healthy economy. Those in the know buy gold and silver. Others contemplate paper investments that have yet to fully deflate.