Is the Economic Downturn Finally Over?

The employment report for July came out this past Friday and showed 247K jobs were loss. That’s considerably better then economists forecasted, which I believe was predicted to be somewhere around 350k plus. The New York Times columnist Paul Krugman believes the economy has finally stabilized, but thinks a second stimulus package is needed for state and local governments. “It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, maybe September,” the Nobel Prize economist said. “My guess is that we’ve bottomed out now, that August was probably the trough month.”

Let’s hope so although there are possibly a couple of things weighting in on what might be fueling the current recovery. China’s economy has picked up again, perhaps re-igniting investments worldwide, and some of the economic droughts in various parts of the country has abated, especially in housing. Will this continue? Another question will be how long can the economy continue its recovery with a prolonged and sluggish period of GDP growth of say 2% or less. Economists have offered this very low level of growth as one mathematical possibility. It seems to me the economic foundation of the United States is so fundamentally bad 2% or less GDP is not just a possibility, but also a certainty for the next couple of years. IMO this will be a jobless recovery that will strain the Treasury and taxpayers, and will be too dependent on increased government spending, and other financial engineering like maintaining lower interest rates. Like I’ve said plenty of times many of the measures addressed in the stimulus packet were needed, so I’m not complaining. It just seems to me somehow pieces of the puzzle are missing. The focus will have to be moved from the current trends of excess supply and cheap credit to strike a balance with actual consumer consumption. Going forward the problem for the economy will be how to tackle consumers who are saving more, and spending less. That’s why when the government decides to create new economic programs these have to be managed carefully otherwise we become what Japan has been for the last 15 plus years. A country with zero interest rates and zero GDP. Then there will be the challenge of a mounting budget deficit not only in the United States, but worldwide. The Telegraph.co.uk reports the IMF (International Monetary Fund) puts the total cost of the financial stimulus at 7.1 trillion pounds with the countries making up the G20 group facing a combined deficit of 10.2% of GDP in 2009. It’s possible if the economy starts to nosedive again our government won’t have the creditworthiness to do anything to stop the implosion.

Read more on the Krugman here
http://www.bloomberg.com/apps/news?pid=20601103&sid=aMZ5qIkGppqA

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