Monday, March 16, 2009

Why the Economy Might Rebound

By Joshua E. Stone
Though it’s too early to tell from the data coming in there are some signs that things are already getting better in the economy. To site a few of the things I have noticed is the Retail Sales and Consumer Sentiment released last week. Another item of note is the jobs report at the beginning of the month; though far too soon to know for sure shows indications of having reached its peak losses per month at about 650k averaged out over the last three month period. Also, the big one, China will pass a stimulus package for their economy. How this can be is the obvious question. Spending and Government intervention is how we came to this boondoggle, how is that these are the things that are saving us now? The answer is quite simple: it is not.
Then what is going to account for the recovery? What could be the reasons if it’s true that the economy is already recovering? Two things: Psychology and China.
What was the reason for the bank meltdown last summer? The first response naturally is what we have all been spoon fed by the media: That banks were caught up in a bunch of bad sub-prime real estate deals, trying to get everyone a home, the American Dream. If you look harder some media will tell the tale of how the politicians made all this happen, with the help of unscrupulous bankers. But buried deep in the heart of the fire is a word that came out in the heat of the meltdown last summer: Trust.
Trust is the psychology of the markets. Without going into endless analogies, we all know this as fact. The entire system is based on trust. This is why Presidents get elected; the winner is the one who the majority of people are convinced they can trust.
So when people decide there is no hope and they can not believe anyone or trust them with anything, everything breaks down. Nothing anyone says or does will save anything because everyone is just selling what they can and heading for the hills to get away from it all. The new President has restored the trust. People believe he can fix these crises and they trust him to do so. That’s all it will take, with some help from China of course. But it has to be noted, nothing close to trust has developed so far between investors and the banks. This remains a big problem, and Obama will have to address this issue.
China can not be underestimated, the recovery in their economy will provide the octane needed to boost not only the global economy; but perhaps make it take off. We still have yet to see a global economy working in cohesion. This crisis will bring it all together and provide the foundation for a possible run on global prosperity unparalleled in its relatively short history.
These facts combined the reality that this crisis was manufactured and not really that bad in the first place, set the stage for a surprising rebound in the economy. Sadly all of the intervention and massive debt being piled on top of all the problems is setting us up for much larger and very real problems later on down the road. Especially if they pass Cap and Trade; that will insure everything derails and breaks down at the seams eventually. As usual the media is derelict in reporting those sides of the story.
In the end this is all that matters, that people have not given up no matter what the reason, even if it based on false hope, or a source of trust they have placed their hope in that is at the same time insuring there own demise in the long run. So keep that in mind during the next crisis: we will survive, all we have to do is believe we will.

1 comment:

Bobby said...

There are varied reasons for the magnitude of the economic failure; but I would insist that the sub-prime loans were like playing with the devil. Freddie and Fannie are socialist concepts that led us to believe in magic. The rest is history fueled by a news media machine that loves nothing better than "failure"; it sells.

Bobby Ringstrom

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