Running on Steroids: A False Economic Recovery by Peter Morici

Globalist Perspective > Global Economy Running on Steroids: A False Economic Recovery
By Peter Morici \| Wednesday, August 26, 2009

With home and auto sales up, many are predicting a recovery for the troubled U.S. economy. Peter Morici puts a damper on any celebration, noting that despite the new programs under the Obama Administration, many underlying problems remain.

ill the economic recovery be enduring and V-shaped? Or will it collapse after a short time and be W-shaped?

For the U.S. middle class, it may have no shape at all — just a strike out.

By conventional wisdom, the housing bubble, credit crisis and collapse in consumer spending caused the recession.

To Wall Street, the recovery will appear V-shaped, but for ordinary workers, it will be a big X, or none at all.

With home sales rising, new cars flying off lots and Wall Street profits soaring, analysts see an imminent recovery. But the economy is running on steroids.

About 90% of existing home sales are distress sales — foreclosures and homeowners forced to sell by financial difficulties. New home purchases are juiced by the $8,000 first-time buyer subsidy that expires December 1.

At the same time, summer car sales were pumped by cash for clunkers.

Regional banks are failing under bad commercial loans and mortgage-backed securities purchased from Wall Street financial houses. Part of Wall Street’s big profits have come from shifting its debauchery onto smaller brethren. Plus, the FDIC may run out of cash to guarantee regional banks’ deposits.

Clueless behavior by big players is frightening. Automakers are boosting production, assuming car sales will continue at their torrid summer pace.

Wall Street is planning big year-end bonuses — instead of shoring up capital for a possible second dip in the recession. It may be time for a Broadway lyricist to pen “Bail ‘em out again, Ben.”

Wall Street is planning big year-end bonuses — instead of shoring up capital for a possible second dip in the recession.

Consumers, recognizing danger, stay away from the malls and seize what dollars they have.

The economy will be lifted by businesses rebuilding depleted inventories, replacing outdated computers and using federal stimulus dollars. Yet those actions simply will not deliver annual GDP growth greater than 2.5%, or many new jobs.

The stock market will rally with modest growth, because U.S. multinationals produce so much in Asia, where growth is robust.

To Wall Street, the recovery will appear V-shaped, but for ordinary workers, it will be a big X, or none at all.

Unemployment will reach 10% and stay there until President Obama pursues pro-growth policies and starts fixing the huge trade deficit and the banks.

The trade deficit is mostly oil and Chinese consumer goods. Export more, import less — or the economy flops.

Without bank credit, businesses can’t expand, entrepreneurs can’t create and workers don’t work.

Unemployment will reach 10% and stay there until President Obama pursues pro-growth policies and starts fixing the huge trade deficit and the banks.

Mr. Obama dodges the toughest aspects of the banking morass. Compensation structures built on the “too-big-to-fail” doctrine permit Wall Street to take huge risks, shift losses onto smaller investors and the government and suffer too few consequences for their calamities.

Until those change, Wall Street bankers will be too busy chasing rainbows to adequately reestablish lines of credit to regional banks essential for business expansion.

Buy only as much as you sell, reasonable pay for honest work and let the reckless fail.

Old time religion? That’s what made America great.

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