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BEING STREET SMART by Sy Harding The U.S. Recovery Is Producing Surprises! January 20, 2012. In 2008 it was a sure thing the bursting of the real estate
bubble, the collapse of the sub-prime mortgage market, the freeze-up of the
banking system, the ravages of the ‘Great Recession’, collapse of the auto
industry, bailout of mortgage- insurance giant AIG, bankruptcy of General Motors
and Chrysler, etc., would wind up with the economy in the next Great Depression. It was then a sure thing that the massive stimulus and
bailout efforts would not work, and the costs would bankrupt the country and
drop it into third-world economy status. There was no chance the banks or the U.S. auto industry
would ever pay back the bailout loans. The assets the Federal Reserve was also
putting on its books to help the banks clean up their balance sheets, by
exchanging Treasury Bonds for some of the toxic assets on the books of banks,
was just further money down the drain. The way the banks seemed to be using the bailout loans to
expand, buying out competitors, expanding into Asia, rather than using it to
make loans, was going to make the ‘too big to fail’ problem even worse for the
future. Even since the recovery began, it has been derided as just
an illusion, as could be seen by the housing industry still being mired in
depression-like conditions, and no progress being made in the terribly high
unemployment situation. Sometimes it seems we’re so focused on the negatives that we
haven’t noticed the unexpected positive surprises in the recovery For instance, how many realize that most of the government
loans made to the banks and auto industry have already been paid back, with
interest. Or that the U.S. auto industry has bounced back
dramatically. Global auto sales recovered sharply in 2011 and the U.S. led the
way, with sales up 9.2%, topping even the 6% auto sales growth in China. Yesterday it was reported that General Motors has bounced
back from its bankruptcy three years ago to a degree that it has regained its
crown as the top-selling car-maker in the world. Meanwhile, the Federal Reserve is making surprising profits
on many of the assets it put on its books in the bailout process, $79.3 billion
in 2010, which it turned over to the Treasury. And it recently estimated it made
another $76.9 billion on those assets, and the Treasury bonds it bought in its
two rounds of quantitative easing, and will be turning that profit over to the
Treasury Department for 2011. Regarding the employment picture, we sometimes forget it was
a global ‘Great Recession’ and the rest of the world has also been struggling to
recover since the recession ended in 2009. In that struggle the economic recovery in the U.S., as
anemic as it has been, has apparently been leading the way. The Financial Times reported on Wednesday that manufacturing
employment has grown faster in the U.S. than in any other leading developed
economy since the start of the recovery, and has added more net manufacturing
jobs since the start of 2010 than the rest of the Group of Seven developed
countries put together. Only two other major economies, Germany and Canada,
have increased factory employment at all. That’s not to say that the employment situation in the U.S.
is great, still 2 million jobs below pre-recession levels. But it is apparently
heading in the right direction and recovering better than most of the rest of
the world. The fears that the financial industry was going to wind up
even more in the realm of being too big to fail in the future, are also
potentially turning out to be unfounded. Banks closed operations and laid off 230,000 employees in
2011, and estimate another 220,000 lay-offs in 2012. Almost every week brings
news of a major bank selling off or closing a division. Just a few days ago it
was that CitiGroup is selling its consumer operations in Belgium. A few months
ago Bank of America sold its stake in the China Construction Bank. Both giant
banks have been cutting back drastically, and recently Bank of America told
regulators it may even downsize further by retreating from some parts of the
U.S., possibly selling branches and operations in a reversal of its aggressive
expansion of the previous 15 years. Putting it all together, the U.S.
recovery from the recession not only continues, but has been producing some
unexpected results and surprises that were certainly not foreseen three years
ago, not the least of which has been a substantial bull market that has the Dow
95% higher than three years ago.
Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends. These reports reflect our opinions and are based on our best judgment, but no warranty is given or implied as to their accuracy. Past performance does not guarantee future performance. Back to the Top Home Subscribe to RSS Feed
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