The Future Looks Bright

  • Thursday, November 22, 2012

There is no question that the economy is stabilizing and climbing out of the hole it fell into in 2007 and 2008; the problem is with expectation.  Consider the word stabilize, it is used by just about everyone involved in analyzing the monthly economic numbers, but the word means "steady" not up; not down.

Steady is good.  Before you can have solid growth you must have a stable base on which to build it.   It looks as though that may have finally been achieved but there is still some weakness around the edges, which mostly involve product demand and a good deal of that relates to Europe.

Most Americans don't realize how much their job depends on what is happening elsewhere in the world.  Few American jobs relate purely to America.  We are a country of processors, assemblers, servicers and laborers and every element of what we do depends on something that is out of our control.  Europe and Asia bashing may make good politics but it's a poor strategy for economic development and job creation.

 What has to be realized is the great opportunity the recession offered to corporate managers to rethink how their businesses actually operate and for employees to take stock of their place in an evolving corporate workplace.

When the recession hit, the first reaction is always to limit the damage.  As the largest single component on a company's expense report is usually people—salaries and benefits—that's where the first adjustments always come because they are the most visible and easiest to control.  The accountants take over (the so-called bean counters) and their job is to maintain profitability and protect the health of the company.  

However, in a society dependent on consumer spending, as people are cut so is product demand which continues the downward spiral and bean counting can only take a company so far.  The old normal is gone and a new normal has to be found.  It takes time and as the economists—those not affiliated with a political agenda or in the pay of a political party or candidate—tell us a recession based on a financial meltdown—such as 1929 and 2008—affect the entire economic structure of a country and should not be compared with the 1970s and 1990s.

From the very beginning of 2009, those independent economists were telling us that this would not be a "V" recession, a quick downturn followed by a quick upturn, and a slow gradual recovery, an "L" shaped one with a quick downturn and relatively flat but growing recovery, would produce the most lasting and solid future for the country and will take eight to ten years to recover.  

No one likes to be the bearer of bad news, especially those with political agendas, so the "L" reality was replaced by the demand for a "U" recovery, a sharp downturn followed by a short flat period and then the quick upturn.  Given the nature of the 2008 recession this was pure pipe dreaming and an economic impossibility and trying to force it to happen could only result in a "W" recovery, a sharp downturn followed by a sharp upturn followed by another sharp downturn—welcome to Europe.  

The latest jobs report shows a clear "goldilocks" trend of an economy in recovery not moving too fast or too slow but improving steadily.  As job cuts stifled product demand job gains will enhance it.  The future looks bright.
Tim Holland is a retired international banker and corporate consultant.

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