How long will the recovery last?

Holiday people, as we head into the new year, I’d like to get the pulse of Credit Writedowns readers on the state of the economy. Last night, I started a poll asking how long the recovery will last.

I am not sure whether the poll questions are readable in the feed or newsletter, but the answers range from “we are not in a recovery, silly” to “the recovery will last more than five years.”

To answer the poll, please go to the site and vote. Polling will last for the first two weeks of 2010. I am not simply asking for your opinion on a poll though; when I say I want to get your read of the economy, I am asking you to comment on this poll as to why you answered as you did. For example, if you think this is a multi-year recovery, tell me why you think the private debt problems aren’t a concern. If you think, we are not in recovery, tell me why you believe this despite the 2.2% increase in last quarter’s GDP.

Now, before you get all New Year’s crazy impulsive and make your selection and comment, please read some of the related posts at the bottom of this post. They give a little more color on what recovery and recession is and is not; they might change your selection.

Thank you in advance for your answers and comments!


Oh… I forgot. Happy New Year! Guten Rutsch. Feliz año nuevo.

  1. demandside says

    Very nice. A group who does not believe a recovery is defined by bouncing along the bottom with no investment nor prospect of investment nor anything good to say about credit growth, employment or the outlook for consumers. My compliments to your readership.

    One only wonders what the stock market is buying.

  2. WalterW says

    It’s not a recovery, it’s a stimulus.

    Once the stimulus is removed the only thing that will turn out to have grown will be the debt, which will be unsustainable and will eventually bring about default and collapse on a scale never seen before.

  3. Fred says

    Rated 10 just for linking to ABBA.

  4. Stevie b. says

    Ed – nice poll. I read a lot, yet i’ve absolutely no idea what’s going to happen next. Having said that, I can pontificate as well as the next man (or woman if she’s allowed to pontificate too). So, I voted for things to fail by 2013. My guess is that we can muddle though somehow or other til then and maybe, just maybe, advances in e.g. solar technology will give just enough of a glimmer of the “sunlit” lands of real recovery to stop us falling totally apart.

    I am convinced however that during the period ahead, the debt of many developed countries will need to be devalued via a decline of their currencies, which should be positive for the stock markets of those countries that “succeed”. It may happen country by country (the UK has made a good start, whilst some others – e.g. within the Euro – are in a less flexible position…for now), such that their currencies will all eventually end up in the same relative historic position to one-another. This would of course mean an increase for such countries in the general price levels of raw resources and perhaps things like gold and farmland.

    Assuming assaults on international trade can be contained (and I still think they need to be, but that’s another story and not perhaps quite as clear-cut as I had thought…see article/ discussion at ), global competition/constrained budgets will mean little flexibility on pay, leading to further gradual global economic convergence and better global trade for everyone raising all ships on a tide of increasing global prosperity (and I’m not drunk!)

    Happy New Year!

  5. Anonymous says

    We are not in a recovery because job growth is not happening. We are recycling the same dollars between ourselves and our communities. I saw a chart that listed the top job growth sectors, almost all of them service jobs. Where are the manufacturing jobs? We produce almost NOTHING! Those who took bailout funds are not lending yet they continue to increase interest rates on credit cards. Cable bills, cell phone bills continue to go up yet hourly rates do not. People around me are getting fired/laid off/let go left and right. Where is this recovery happening?

  6. LavrentiBeria says

    One trusts words like “recovery” when something substantial, not something will-‘o-the-wispish or ethereal, grounds them. The reality seen to be “recovering” of itself must have experienced something approximating permanence to be perceived as such. Ours is a house of cards responding like some ventriloquist’s dummy to the manipulation of desparate charlatans intent on finding some vindication in their chicanery. In any case what permanance is there in a “recovery” seen by many as a near-term adjustment in a more fundamental, longer term nose-dive and, particularly, one directed by such snakes? Ask yourself if the vermin that created the crisis possess the skills to resolve it. Only a politician or a lobbyist might say yes to this question.

  7. Onlooker from Troy says


    I agree with your stance that we are in a technical recovery, or as John Mauldin puts it, a statistical recovery. But it’s weak and anemic at best, and is just a dead cat bounce combined with money stolen from future generations to pump up our numbers for political purposes.

    We haven’t done a thing to really tackle the problems we have or create a solid base from which to grow. No, that would be much too painful for this weak and cowardly bunch. So we’ll have to crash it once again to force a liquidation of debt and reform or our financial industry that is currently sucking the life out of us. Just a bunch of rentier thieves with too much political influence.

  8. Anonymous says

    (Voted that recovery will end in 2010/11)

    Currently we are in a technical recovery fueled by a mixture of fiscal and monetary stimulus, rather than by the real economy (i.e. consumer demand, increased capital spending, exports etc.). After the massive amounts of stimulus applied to our economy, we better hope we saw some positive numbers out of it. So that said, all of the growth witnessed in Q3 , which can be attributed entirely to the stimulus package, can be discounted as ‘artificial’ and temporary — not a sign of true economy strength.

    Heading into 2010, we are faced with a number of very tough choices and headwinds. Whether these issues lead to a double dip in 2010, 11, or 12, I do not wish to forecast. However, I do think the likelihood is greater than not we will see a double dip within the next 3 years.

    Firstly, with fiscal stimulus starting to peter out by the end of this year (after which it will be a drag on growth), we will see the real economy face an important test: can it continue to show the improving strength we have seen recently without the government? Of course the likelihood of more stimulus (via a ‘jobs’ package) is all but certain, but for reasons of political will (outrage with rising deficits) it is less likely it will be large enough to prevent this “test.” Along similar lines, if Obama gets too serious about deficit reduction too early (via higher taxes: not only higher income tax brackets but new taxes as well, like a VAT or cap-and-trade), this could present another difficult test for our current technical recovery.

    Another tough milestone coming upon us is the Fed’s exit strategy. I have no idea where rates will be by the end of the new year, but I do know there is a risk that the Fed’s tightening could come too soon. One thing on my mind regarding this topic is that the “second wave” of mortgage resets / recasts, which only began this past November, will be all the more painful if mortgage rates are significantly higher than the ~5% they have been more recently. Considering the considerable weakness still in our economy and all of these headwinds, I think it would be unlikely we see major rate increases this year. This can’t be a foregone conclusion, however. The Fed doesn’t have the greatest record of economic forecasting (witness the YouTube video floating around showcasing Bernanke’s numerous misstatements over the past few years).

    Finally, there are a number of other risks facing the economy which I won’t go into detail about: accelerating pace of CMBS defaults, sovereign default worries in Europe (PIIGS, UK), and the fat tail risk of China’s boom turning into a dramatic bust.

    I’m sure there is more that could be said to express my view, but these are the issues that come to the forefront for me as I think through everything.

  9. MikeNY says

    FABU link to ABBA, thx!

  10. Anonymous says

    i think i am responding to your query about why i voted
    i voted ‘not ‘in recovery’
    the massive government interventions have hyped gdp variously, and kept the banks afloat
    but losses is losses, no matter how many times you sweep them under the rug[s]. until they are taken, the fall is not over and the recovery cannot begin. i figure we are maybe 30% there

  11. Matt Stiles says

    “We are not in a recovery”

    Simple math. The crisis was caused by debt levels that were too high for the economy’s ability to service them. This was ameliorated by a reduction in interest rates, relaxed accounting standards and mere “hope” that all will be better.

    The actual problem has not been dealt with. It has, in fact, been made worse, as government debt increases have exceeded the pace of private debt deleveraging. Thus, the economy is in an even weaker position than it was in 2007.

    This is not a recovery. It is an “un-covery.” And a rising GDP of 2.2% does absolutely nothing for the aggregate wealth of individuals. It is a reflection of rising government debt levels which inherently gets directed toward the latter stages of the production structure – consumption and malinvestment.

    We will have a recovery when:

    – the servicing obligations on our ~$60T in debt drops below 10% of total output
    – the rate of private savings exceeds historical averages of ~7%
    – the trade deficit is wiped out
    – consumption as a % of GDP drops below 68%
    – the above resulting in investment directed toward the earlier stages of the productive structure as wages fall
    – a new technological advancement allows us to rapidly increase our productivity

    Without these basic ingredients, any advances in GDP will be a mirage, requiring an unwind at some point in the near future.

  12. Anonymous says

    StilesBC nails it exactly. No Recovery.

    The GDP reflects rising government debt levels. Along that same line of thought, The GDP means different things at different times. For example, a wartime GDP will register positive growth which is false. War debt & war materials are totally unrelated to wealth creation, yet they show up positively in GDP.

    The change in accounting rules had nothing to do with real debt reduction. The changes just accounted them out of concern. Those debts are as real as ever and will be accounted for by the market even if accountants ignore them.

    BCStiles’ list of conditions for recovery is excellent! I think I will recite them here:

    “We will have a recovery when:

    – the servicing obligations on our ~$60T in debt drops below 10% of total output
    – the rate of private savings exceeds historical averages of ~7%
    – the trade deficit is wiped out
    – consumption as a % of GDP drops below 68%
    – the above resulting in investment directed toward the earlier stages of the productive structure as wages fall
    – a new technological advancement allows us to rapidly increase our productivity”

    Now I think I will print them and nail them to my front door since BCSTiles’ list is the only glimmer of recovery I have seen. Everything else looks like a move towards a Command & Control economy on the Soviet Eastern European model, i.e. indefinite economic nausea.

  13. Stevie b. says

    So c’mon Ed – perhaps now this post is off page 1, it’s time you told us how you voted? After all, your readers are so independently minded that they’ll still vote how they want regardless of what you think, although it’d surely always be tempting to vote for the least popular option. If memory serves me well (a rarer occurrence these days!), that was the way to go last time re “when will the US recover?”

    1. Edward Harrison says

      The voting is supposed to run through January 14th! I could shorten it, but until then I am likely to remain mum – not that my opinion counts for anything. But, Stevie B., I at least try to keep it somewhat neutral. :)

  14. MonyInAsia says

    2.2% GDP “growth” coming out of a recession is weak by historical standards (I’m citing Rosenberg on this point). Job growth is obviously non-existent. Too much debt overhang. Importantly, too much private-sector uncertainty over government regulatory plans and policies (health care “reform” that nobody will understand and possibly unconstitutional anyway, cap-and-tax which benefits politically well-connected industries, income tax increases, financial sector “reform”, further trade wars with Asia; lord help us if a Federal VAT gets any traction in D.C.).

    A small but telling anecdote is Northrop-Grumman moving it’s corporate HQ from LA to D.C. 300 jobs lost in LA but tells you much about where the center of economic power is in the US, and you can bet that the other 99.9% of US companies of all sizes and without the luxury of preferential federal government contracts/bids/ connections to fuel their sales over the next few years are scared to death.

    Interestingly a GOP takeover of the House in the mid-term elections would go a long way to reassuring the private sector by creating desperately-needed gridlock in D.C. However, the debt overhang will remain for years to come.

  15. Jeff says

    “If you think, we are not in recovery, tell me why you believe this despite the 2.2% increase in last quarter’s GDP.”

    Because it has been shown convincingly that Stimulus spending accounts for this 2.2% and the economy would have contracted ex-stimulus. Yes, the economy is in a technical recovery but that would seem to be meaningless… it’s unlikely to be self sustaining this time.

  16. Anonymous says

    I voted that it is not a recovery. I would subscribe to Mauldin’s view that we are in a “statistical recovery.” Looking at it in terms of cycles, I would expect the economy to continue to manifest modest signs of improvement until the Spring months. My concern is that at that point things will then begin to fall apart in a dramatic way and we will enter a period of economic depression not seen in the world since at least the founding of America. For genuine improvement to occur, the problems (banks that are too big to fail and have grown bigger, toxic assets and continuing shameless use of weapons of mass financial destruction, high unemployment with permanent loss of jobs, etc. etc.) should be solved and not ignored. When you see all of the problems that exist simultaneously and contemporaneously, which I have been documenting at , and when you see that one or more of these woes could worsen very easily, you realize that the only way that a recovery can take place is if no one screws up. Everything has to go “just right.” We are getting statistical upticks, we are not getting genuine reform that would build our house on a solid foundation.

  17. Attitude_Check says

    The “recovered” economy is like a dead corpse hooked up to a high-voltage system that is periodically energized causing the body to spasm. This is mistaken as reanimation and recovery. The “stimulus” spending is the occasional jolting of the dead body of our economy.

  18. Lilguy says

    I’m having trouble interpreting your question. Are you asking how long until we reach the peak of 2007 or how long until this “recovery” (?) turns back into a recession.

    From my perspective, the answer to the first interpretation is very long and the answer to the second is very short.

  19. dansecrest says

    I voted that we are not in a recovery. There have been some upticks following the big drop, but unemployment has not yet started back up, and the improvements have been tenuous at best. A real recovery from a recession of this magnitude requires a year or more of significant growth. We haven’t yet made a dent in the loss of jobs and income, and we’re not likely to in the near future because much of our economy (the FIRE sector) was exposed as a bubble. False hopes that we will return to bubble levels of economic activity do not constitute a recovery, but rather set the stage for the next leg of the downturn…

  20. juan says

    it is not a recovery because debt created the crisis, and how is it being solved? with more debt. Debt creates bubbles in the stock market, not recoveries. The only thing done so far has been creating a bigger problem. Why the stocks go up? just because stocks are emotional, they don’t have anything to do with the economy. Even in recession periods when the GDP turns eventually positive, stocks kept going down for a long time. Look at the GDP and stocks in 1929-1932 when finally the DOW lost 85% if its value even with positive GDP growth all along. So, sure you can have a 2% GDP growth and still no recovery. It is bear rally and we are heading down in stocks very soon! this stimulus bubble will pop soon and the March lows are history!

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