From Recession to Rebound….America’s 2012 Economic Recovery

A Great Recession is the direct consequence of many things “gone wrong” in an economy. In essence, it’s the end result of a kind of irreversible “economic domino effect.” Taking this for what it’s worth, the recession of 2007-2009 is proving to be an economic “low point” like none other. As the US economy forges ahead in the second decade of the new millennium, many economists and financial experts seem to be stuck between a bull’s rock and bear’s hard place when it comes time to forecast next’s year economic outlook. Making matters worse for these dithering prognosticators is the very political/economic environment that it hinges on: unemployment officially stands at 9%—thus stands to reason to be a key economic indicator. Explicitly, any number above this recessionary benchmark equates to another v-shaped recession—aka bad Obamanomics—and any number below this benchmark—aka good Obamanomics—pretty much assures “two left feet Obama” another inaugural dance with his graceful and voluptuous wife, first lady Michelle.

What causes Great Recessions? The answer to this question seems a bit ambiguous—one can subjectively formulate both a complex and a rather simple response. If you buy the logic that recessions are the direct result of the business cycle at its lowest point, then you must also buy the logic that the true causes of very sadistic recessions may be a provocation. What provokes the business cycle into a kind of “low point of slow return” isn’t economic conjecture: an expansionary boom is a spending bonanza. Fact is, at some “unknown point,” people get tired of spending and gradually start coming down off of economic “cloud-nine”—then all economic hell breaks loose.

A Great Recession’s recovery in 2012 should pan out like any other post financial crises—baring we don’t over leverage ourselves, again, to the point of being counter-punched by “deleveraging.” This shouldn’t happen that much in 2012—especially given the US’s pre-recession profligacy: prior to the economy’s imminent breakdown of 2008, Americans seem content on using and abusing credit much to the detriment of creating one of the worst financial “low points” since the Great Depression—financial “low point”? An economy at its nadir—aka an economic engine in cool-off mode not only is a time for banks, households and firms to do a little bit of introspecting, but is also time for the economic trio to do a lot of “paying down debt” (“deleveraging.”)

Ushering in 2012 will mean closing out 2011—one of the most anomalous economic calendar years on record. Aside from the Wall Street spectacle created by MF Global’s mishandling of millions of its customers monies, most of the oddity came by way of the US government unable to “fix the deficit glitch.” As we all clearly know by now: America has a little problem with running budgetary deficits. In fact, we’ve been running them for so long, that it’s become a part of our national identity—a national identity that Obama and his economic team will systemically wage war against in 2012. Part of Obama’s new stratagem entails appointing a special Congressional committee with the task of finding $1.5 trillion in deficit cuts over the next decade. The second part entails entitlements (health care, pensions, etc) and the third part consist of good ‘ole fashion taxes. Ceteris paribus (holding the election year at a constant) the two parties—with their opposing viewpoints—should find that economic history tends to repeat itself.

The 2011 European Crisis was just that: a panic. Kicking off the hysteria was little ‘ole Greece. When Prime Minister George Papandreou’s stunning decision to call a referendum on his country’s bailout, the European Union—as head by the zone’s two strongest economies in France and Germany—all but handed Greece its ultimatum: “Do you want to stay in zone or not?” That was the question! A question heard around the world, as millions of American investors all of a sudden got the jitters thus started pulling back on any financial instruments that could even remotely be affected by Greece’s contagion—i.e., money market mutual funds, European sovereign bond markets, etc. This said, Greece’s pandemonium all but created a Eurozone pandemic—as Italy, the Eurozone’s fourth largest economy came close to an all out systematic shut down. Italy’s economy, like its neighbor to the south, learned that it might be better to avert panic than to try to pacify it: as it reached a nexus between what it could conceivably do in the economic interim to brace itself for an imminent global financial toxic sub prime mortgage storm sweeping across the Atlantic Ocean and into the Mediterranean Sea—thereby, sending ten year Italian bond yields beyond the 7% mark of death threshold. The widespread problem of economic dissipation is something that both Italy and Greece will have to address in 2012 as they strive to get their economy’s engine roaring again—amid the region’s massive austerity.