Smoking the Green Shoots

[4dsc]

Question for the day: Where is the economic recovery going to come from?


We are still at the stage of the recession where economic downdrafts are producing more downdrafts. Reduced purchasing power leads to fewer retail and factory sales and more layoffs, further reducing consumer demand. The Obama stimulus package, about 2.5 percent of GDP for each of two years, doesn't make up enough of the difference. But the federal deficit, caused mainly by falling revenues and not by increased public spending, is alarming the budget hawks. The administration worries, correctly, that deficits will be high for several years to come and wonders who will keep lending Uncle Sam the money. Yet cutting back spending before recovery comes would be suicidal.

In addition, the financial sector has not yet returned to health, despite outsized profits (and bonuses) reported by the likes of Goldman Sachs. This is the kind of purely financial engineering that caused the collapse. The fevered activity at Goldman is a sign of lingering economic illness, not economic health. The rest of the economy, which depends on the financial sector for real investment capital, is still deeply depressed.

http://www.huffingtonpost.com/robert-kuttner/smoking-the-green-shoots_b_240395.html

Worth repeating Where is the economic recovery going to come from? I've been asking this question over and over again and there is no answer..

[On the Road]

1. Recoveries Never Look Possible at the Time

Perhaps partly because they happen at an individual and a company-specific level. Recoveries always climb a wall of worry. But they do happen.

Destruction of the financial sector is the one thing that could turned this into an interminable depression, but it's in the process of pulling through. The leading indicators suggest that things will turn around little by little over the rest of the year.