How to Spot an Economic Recovery Addict

Economic Recovery Addicts

Since the beginning of the Great Recession, dating back to the “green shoots” days of early 2009 and recovery summer of 2010, there has been a crowd of analysts, journalists and pundits searching for signs of an economic recovery.

One group of analysts sifts through the data and determines most of it is negative but concludes “bad news is good news” because it means the Fed will continue its multi-trillion dollar quantitative easing (QE) experiment to try and drive interest rates lower and the real estate and stock markets higher. This realistic school of thought does not believe there is an economic recovery, rather just endless excuses to continue QE.

There is another more addictive school of thought, near Panglossian in nature, that goes “any news is good news” and can be taken as yet another sign of economic recovery.

This is the Economic Recovery Addict Syndrome.

Symptoms of Economic Recovery Addict Syndrome

Symptoms of this wishful thinking malady include:

Believing rising interest rates won’t harm the real estate recovery*;

Believing the employment situation is improving, and is indeed “solid”, despite the evidence that mostly part time jobs are being created;

Believing unsupported general statements that the economy is recovering; and

Believing that increased spending on pets is evidence the economy is improving!

These beliefs can be held in isolation or be coupled with each other. The more afflicted will believe them all and repeat them constantly while continually searching for more news and data to satisfy their recovery fixes.

Recovery addicts are oblivious to the facts that refute their wishful thinking:

Higher mortgage rates are already negatively impacting mortgage applications

Federal Reserve Chairman Ben Bernanke himself said employment is not where it needs to be and that the unemployment rate at 7.6% overstates the health of the employment market citing the high rates of underemployment and the low labor participation rate.

by just about every economic measure other than the rise in consumer sentiment, and the stock and real estate markets, the overall economy is not improving; and

spending on pets increases during a recession!

Perhaps the flat to low second quarter GDP numbers to be released in late August will turn economic recovery addicts into recovering economic recovery addicts. But I doubt it. Economic recovery addicts are masters of denial: GDP data doesn’t matter, and like QE, can always be revised higher.

*Economic recovery addicts believe that higher interest rates are a sign of recovery and expectations of future growth in the economy when rates are rising solely because the Fed is threatening to stop buying T-bonds. If they don’t buy them demand goes down and rates go up. This has nothing to do with an improving economy.

Economic Recovery Addicts discussed starting around 9:15 below.

Where is the Economic Recovery?

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Further Reading:

Need help? There is a government web site designed to help economic recovery addicts.

Chart showing the rapid increase in mortgage rates (St.Louis Fed)

Mortgage rate increases won’t spoil the housing recovery (Lennar Builders)

Welcome to the Recovery – Tim Geithner NY Times Op Ed August 2010
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