What Letter Shape is the Recovery?

Lawrence Lindsey (former National Economic Council Director) gets its right. You should play this clip once and then play it over again. He puts a dagger in the "V" shaped recovery scenario for the same reasons that I do. He rather optimistically predicts the economy will have a "U" shaped recovery. He and I agree however, that since real incomes are down, credit is tight and job growth is non-existent there can be no strong and lasting rebound.

He also agrees that the inventory rebuild will bring Q3 growth around 3%, but he thinks Q4 could actually be negative. He also realizes that the U.S. government is "sucking" up the entire world's savings and there is not an unlimited supply of credit.

The best part of his interview came when he indicated that there is also NOT an unlimited amount of trust on the part of foreigners to hold our currency or our debt.

He also explains why the Treasury auctions have been such a success. The reason; banks can borrow money at next to nothing and buy a risk-free government backed T-bill. So they are not lending to businesses to make loans to grow the economy, they are sending it to the government instead. That means growth in the money supply is of the unhealthiest variety and will lead to many quarters of stagflation ahead.

The problem is crushing debt on both the private and public sector level. That takes years if not decades to place back into reconciliation. Only the healing process has not really yet begun. In fact, thanks to government debt and redirection of capital, we are further "in the soup."

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