Sunday, March 31, 2013

The Great Recession, the Great Recovery and a Grand Illusion

Last week, in the Eurozone, the Cyprus financial crisis led to banks reopening with significant limits on withdrawals, and German finance minister Wolfgang Shäuble described the situation as a "one-off” solution.  In Italy, its Presidential election process remains in a state of gridlock. In the U.S.,  as the S&P 500 equity index rose above its previous high in October 2007, equity markets in several other economic regions have yet to experience similar recoveries.

Noteworthy commentary during last week included:
  • Ben Bernanke - Chairman US Federal Reserve, speaking in London: “Today most advanced industrial economies remain, to varying extents, in the grip of slow recoveries from the Great Recession.“ 
  • William C. Dudley - President New York Federal Reserve Bank, speaking at the Economic Club of New York: “The unemployment rate is modestly lower …. which is certainly welcome. However, other important indicators including the employment-to-population ratio and job-finding rates are essentially unchanged. This suggests that the labor market is far from healthy.”
  • Mortimer Zuckerman - Chairman and Editor in Chief of U.S. News & World Report, in his article ‘The Great Recession Has Been Followed by the Grand Illusion: “February's headline unemployment rate was portrayed as 7.7%, down from 7.9% in January… But if you account for the people who are excluded from that number—such as "discouraged workers" no longer looking for a job, involuntary part-time workers and others who are "marginally attached" to the labor force—then the real unemployment rate is somewhere between 14% and 15%.”

  • Regarding the Eurozone - As policy makers continue to apply “one off” solutions to issues within various member countries, there is little evidence that its citizens are committed to the vision of a united Eurozone. 
  • Regarding the S&P 500 recovery – it has benefited from aggressive stimulus efforts by the U.S. Federal Reserve and record corporate profits, driven by muted wage growth and limited employee hiring.
  • Regarding U.S. unemployment trends – while the reality of this topic continues to be avoided by the media and many policy makers, it is an economic and social challenge that will likely persist for years to come. 

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