Economists, analysts & bankers are all engaged with the question of economic recovery looking for “green shoots” sprouting from all aspects of the economy from A to Z. Significantly, they are examining all statistical data from unemployment, trade, retail, housing & particularly the stock markets, looking for “green shoots” indicators as optimists would term it.
The debate is taking on an alphabetical twist, but fortunately we can dispense with all the 26 letters & concentrate on just four – V, W, U and L. Basically & quite simply they represent four categories of recovery:
V Rapid – Victorious Rise
U Gradual – Subdued Growth
W Up & Down like the Rollercoaster or Yo-yo
L Down & Out – Freefall & Staying Flat . . . A “Long” slog to Recovery.
Now, what about these two scenario of queer mathematical signage of recovery as mentioned by Merrill Lynch in respect of the European case?
Could the above two be “An angled square root” & “A squiggle root”?
They just look like hooks & diminishing sine waves of odd economic recovery shapes.
Whatever biological signs that are shown by the present stock market in US, they are no indications to the real dire situations & analysts will tell you that the worst is yet to come.
The worst to expect is the “L” phenomenon where the economy suffers a freefall & remains there – with an unpredictable recovery for sometime! In the boxing ring this is going for the count as “Down & Out!” – lying flat or crawling to rise. Look at this chart above of the US Treasury Bonds (May 2009 Weiss Research Inc.)
With massive US Government borrowing & “fiat” money printing, world investors, notably China, Japan & others are losing their confidence in the US Dollars & are finding their exists. China of course is taking the lead in this.
Washington cannot go on & keeping on existing as an “Unlimited Corporation”. It cannot loan or commit to save failed corporations and stimulate the economy without limits. Liquidity does not come out of the random printing press but out of solid productivities & positive economic activities. Ironically, great corporations like General Motors & others, despite having received rescue stimulus packages, are winding down their operations in US or seeking the protection of bankruptcy & re-establishing themselves in China.
Fears have been sounded & echoed:
*”By absorbing trillions of dollars of toxic assets, Washington has transformed itself into a toxic government. So it should come as no surprise that the government’s most volatile securities — bonds — will be the next victim of the market’s revenge.” (Safe Money Report).
*Bill Gross, manager of the world’s biggest bond fund PIMCO, warned that the United States will eventually lose its top AAA credit rating and any downgrade would crush the investment markets. “The market will recognize the problems before the rating services — just like it did today,” said Gross.
*Even U.S. Treasury Secretary Timothy Geithner sounded the alarm yesterday. In testimony before Congress, Geithner warned, “We must get our fiscal house in order or risk having government borrowing crowd out productive private investment.”
*In its minutes, the Fed said that, to reduce the tidal wave of U.S. Treasuries now flooding the market, it will probably have to kick the printing presses into overdrive and buy those Treasuries itself! But the supplies of Treasuries dumped on the market are so overwhelming, even the Fed can’t stop Treasury bond prices from collapsing.
A V-shaped recovery is the best scenario, but under the circumstances it would be hopeless to expect any recovery yet or to enjoy a steep bounce back.
“Green shoots” will have to wait for the coming of spring, but it looks more like a prolonged winter to be. Remember too, what appear to be “green shoots” may turn out to be weeds like the desert mirage.
The curtain is drawn. The show is just beginning. Be patient. Watch & see. The end will be most interesting.
Sunday, 24 May 2009
2 thoughts on “The 4 Alphabets of Economic Recovery”
Again, you have produced an excellent article.
It will be very difficult for the US to make a come back, if at all. In any case, their days as the number one economic power are over! I believe the US stays in the W and L categories until at least 2011. It will then change to the U category for a number of years.
There are few easy choices the US can make to help change their predicament. As far as I can see, they can perhaps:
* Convert their massive gold stockpile to cash;
* Depreciate the US dollar to facilitate export and to assist whatever leftover of the domestic industry – of course, countries like China and Japan will not be happy;
* Open up oil fields along the coast lines, perhaps at the expense of the spoiling the coastal sceneries/environment;
* Open up Alaska and develop the oil and mine fields over there;
* Develop and use more renewable and nuclear energy;
* Relax selling high tech weapons (tanks, fighter planes, missiles, submarines, etc) to other countries, at the expense of security;
* Stop giving aids to other countries, thereby reducing their status as the top dog;
* Promote tourism in the country, perhaps at the expense of internal security;
* Relax other rules to increase export.
Thanks for your compliments & really taking the trouble with your comments.
You are really a thinking man & your comments & suggestions are well worth
noting. But “Washington Think-Tank” has more “Delusions of Grandeur” which
will only lead to their greater downfall. “Down & Out” as out in the boxing ring!