No Wage Growth; No Economic Recovery

[Crewleader]

Aug 30, 2009

By: Mike_Whitney

A recent poll shows that most economists now believe that the recession, which began in December 2007, will end in the third quarter of 2009. There's been an uptick in manufacturing and consumer confidence, and the decline in housing prices appears to be flattening out. Unfortunately, the return to positive GDP will likely be short-lived. The current surge in production is mainly the result of President Obama's fiscal stimulus and the rebuilding of inventories that were slashed after Lehman Bros defaulted in September, 2008. These factors should boost GDP for two or perhaps three quarters before the economy lapses back into recession.

The most serious problems facing the economy have not yet been addressed or resolved. Consumer spending and bank lending are still contracting, and the banks are buried beneath $1.5 trillion in toxic assets and non-performing loans. Also, the wholesale credit system, (securitization) which provided up to 40 percent of the credit flowing into the economy, is barely operating. No one really knows whether the system is salvageable or not. On a fundamental level, the financial system is broken and neither the Fed's zero percent interest rates nor Obama's gigantic fiscal stimulus has reversed the prevailing downward trend. Capital has stopped moving; the velocity of money has slowed to a crawl. It's true, things are getting worse slower, but the signs of "recovery" are as faint and irregular as a dying man's breath.

The financial media has played a key role in restoring consumer confidence. Negative reports are air-brushed or shuffled to the back pages while modest improvements in housing, corporate earnings or "clunker" sales are splashed boldly across the headlines. Naturally, most of the media's attention has focused on the 6 month rally in the stock market. The S&P 500 has lunged ahead 52 percent from its March 9 low. But equities are merely reacting to the ocean of liquidity the Fed has poured into the financial system through its quantitative easing (QE) and liquidity swaps. Market analyst Andy Xie explains how it all works in his article "New Bubble Threatens a V-shaped Rebound":

"Central banks around the world, although they haven't done so deliberately, have created another liquidity bubble. It manifested itself first in surging commodity prices, next in stock markets, and lately in some property markets....

http://www.marketoracle.co.uk/Article13094.html

[Indenturedebtor]

1. Yep, making the rich richer doesn't benefit anyone but the rich

This bubble will crash soon enough. And then there will be no stops left to pull out.

[rhett o rick]

2. Wait just a min. The stock market is up. What else matters?

I wonder if it is possible to have a good economy with everyone out of work? WE NEED Bernie Madoff, he could do it.