“The recovery may be V-shaped in the next quarter or two, but it is very doubtful indeed whether it can continue to be so for long enough to define itself as a true recovery rather than merely an intermediate bump in a “double-dip” recession. On unemployment, for example, since 8.4 million jobs have been lost in the recession, a US recovery that lasted two years from now would have to create 350,000 jobs per month to restore the jobs lost, and that would still leave unemployment much higher than in December 2007, at 6.5-7%, because over 5 million more people would have been added to the labor force between December 2007 and April 2012. “
“So what are the chances of 5% US annual GDP growth for the next two years and commensurate growth in international markets? To see the problems involved, consider the question of commodity and energy prices. In the last 12 months, while the global economy has been operating far below capacity, the Organization for Petroleum Exporting Countries benchmark crude oil price has risen from $50.20 to $81.52 per barrel, a 62.4% increase. Yet US GDP, which bottomed out last April/May, has risen no more than 5% in the last 12 months, probably less. Thus two years of 5% GDP growth would imply energy prices rising at least as quickly as in the last 12 months, as Chinese and Indian growth continued rapid and US oil consumption rebounded towards historic trends. “
“Two more years of 62.4% price rises would take oil prices to $215 per barrel. Given that $147 per barrel oil was a major contributor to the 2008 crisis, do we really think the US economy capable of bearing $215 oil in 2012 without caving in on itself? I don't think so. At least, not unless the dollar has collapsed and inflation has taken off to a level of perhaps 20-25% per annum, which is certainly a possibility”
A gamma-shaped recovery may look fairly unattractive, but it's a lot better than the alternative of rapid recovery followed by blowout. It could also be engineered so that the gamma-ization of 5% growth into 1.5% growth did not become apparent until after November's midterm elections, thus allowing the Obama administration to present simple folk in the electorate with the impression of a vigorous and sustainable recovery.
I am ashamed to admit that I did not visit the Mises Collection again on my recent visit to Hillsdale. I thought it was too cold to walk across campus.
Somehow, somewhere in there, there's an analogy for the coming crisis...Simple folk happily staying warm and snug, never bothering to educate themselves.
Have a good day!