STAFF NEWS & ANALYSIS
U.S. Emerges From Recession
By Staff News & Analysis - October 31, 2009

The world's largest economy expanded at a 3.5% annual pace in the third quarter of the year, marking the end of a recession that has cost 7.2 million American jobs and prompted the most radical Government response since the Depression of the 1930s. The figure topped the prediction of Wall Street analysts who had penciled in growth of 3.2%. The return to growth in the last quarter was driven by a rise in consumer spending and a blitz of stimulus measures by the Government. While acknowledging that the economy has rebounded, experts are divided on how strong the recovery will be. Some reckon there is a significant risk that the economy will fall back into recession. "At this stage the numbers are just going to tell you the recession is over, and now the argument is going to centre on the speed of the recovery," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, told Bloomberg. "There will be a lot of naysayers." The US economy, which has been the engine of world growth for the last decade, still faces significant headwinds, with President Obama's ability for further stimulus constrained by a record $1.4 trillion Budget deficit, and unemployment rising. The unemployment rate hit 9.8% last month as another 263,000 people lost their jobs. Ben Bernanke (pictured left), the chairman of the Federal Reserve, warned earlier this month that the economy probably does not yet have the momentum to reduce unemployment. However, America's official emergence from recession means that of the major G7 economies, just Britain and Italy remain mired in the downturn. France, Germany and Japan all came out of recession in the second quarter of the year and figures for the third quarter have yet to be released. – Telegraph

Dominant Social Theme: Good times return?

Free-Market Analysis: The jobless recovery has begun. We don't think it's much of a recovery, though. We guess we're among the naysayers. We've figured that in America alone the numbers of jobless (those wanting jobs anyway) are between 20 percent and 30 percent. That's over 60 million individuals that the country cannot provide jobs for. It is the outcome of a system that relies on monetary stimulation to create a series of false booms and then leaves people without work when the inevitable busts take place.

In Europe, the economic situation continues to be aggravated by joblessness and a lack of growth. Countries in Eastern Europe and some Western countries like Spain are especially hard hit. Britain and Italy are also struggling. Regardless of what statistics show, the system itself is configured in a way that promotes joblessness. So many jobs are created during a false boom that will not remain during the inevitable downturn that many people live constantly on the edge with little or nothing to fall back on should they lose work.

Additionally, the figures that governments use to calculate the "health" of the economy are often massaged and untrustworthy. While articles have trumpeted the recovery, especially in America, even mainstream articles are a good bit less enthusiastic once you get past the first couple of paragraphs. Here's an excerpt from an article that appeared on Yahoo:

The U.S. economy grew in the third quarter for the first time in more than a year as government stimulus helped lift consumer spending and home building, fueling an unexpectedly strong advance.

Signaling the end of the worst recession in 70 years, the Commerce Department on Thursday said the economy expanded at an annual rate of 3.5 percent in the July- September period, snapping four down quarters with its fastest growth pace since the third quarter of 2007 and exceeding forecasts for a 3.3 percent rate.

The report helped lift global stock markets which were also boosted by improving third-quarter corporate earnings, including higher-than-expected profits from household goods makers Procter & Gamble Co and Colgate-Palmolive Co. On Wall Street, the broad S&P 500 index of U.S. stocks had gained more than 1 percent in morning trade after four days of falls caused by investor concerns over the outlook for economic growth.

Prices for U.S. government debt and the U.S. dollar fell as traders exited safe havens."The economy has emerged with gusto from the deepest recession since World War Two," said Harm Bandholz, economist at UniCredit Markets and Investment Banking in New York. "The short-term prospects for the economy remain good."

Growth was generally broad-based with solid gains in consumer spending, exports and home construction. But, worryingly for economists, it was also driven by emergency government programs like the popular "cash for clunkers" incentive for new auto purchases and an $8,000 tax credit for first-time home buyers.

The auto discount program ended in August and the home tax credit is due to expire next month, although Congress is working on a plan to extend it.

Stripping out auto output, the economy would have expanded at only a 1.9 percent rate in the third quarter.

So it turns out that the US economy actually expanded only two percent, not three percent. But we wonder if these figures are adjusted for price inflation. And in any event, a recovery based on the kind of money stimulation that has taken place is one that has intrinsic problems. The main problem of course is when and how to withdraw funds that have been poured into the economy by central banks to try to get Western economies moving again.

If central bankers attempt to remove money from the system too soon, economies will slump and whatever growth has taken place will vanish. If central bankers wait, the result will be price-inflation that will be just as destructive to the nascent recovery, and probably moreso. Either way, a chain of events has been manufactured that will result in further problems down the road.

After Thoughts

The mainstream media is trumpeting a recovery based on certain statistical growth rates. But these are only positive signs if seen in isolation. If one looks at the broader sweep of Western economic progress one can only be struck by its cyclical nature and by the deepening of the cycles as more and more monetary stimulation is seen as necessary to keep fiat money economies afloat. There is unfortunately no way out of such fiat money traps. They have an ineluctable logic about them and cycles will simply continue until they become so extreme that the system is not viable anymore. That's why we figure sooner or later there will be a return to some sort of gold and silver private money standard. In the long run, nothing else works.

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