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Financial recovery timetable

Doesn't look good according to Robert Reich at Talking Points Memo:

When Will The Recovery Begin? Never.
The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.

Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.

That's where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.

Personally, I don't buy into either camp. In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

And those replacements will come used from eBay and Craigslist. I have a truck that I love but it is approaching the 200K mile marker and it is time to think about a replacement while it is still running well enough to sell for a couple $K. No way will I be buying a new vehicle, I'll look for something about two years old with 40K to 80K miles on it for about $10K -- maybe splurge a couple extra K-bucks for a Diesel if something sweet is available. A lot of local people are downsizing their lifestyles to try to get through this mess. I wonder how the bozos in Washington can have such a bad read on what the problems are and how to truly stimulate a recovery -- Keynesian Economics has shown time and time again to simply not work. It did not work in Japan in the 1990's and it did not work in the USA in the 1930's and it is not working now... Posted by DaveH at July 11, 2009 8:01 PM