The US Recovery Is Producing Surprises

BySy Harding

Being Street Smart

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 CEO of Asset Management Research Corp., author of 1999's Riding the Bear and 2007's Beat the Market the Easy Way. Sy Harding is editor of http://www.StreetSmartReport.com, and the free market blog, http://www.streetsmartpost.com

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A Cluster of (Minor) Errors

ByDoug Utberg

One of the things that we have been conditioned to believe in both business and in life is that mistakes and errors need to be avoided. This idea pervades our education system, our mindset as employees, and our behavior as business owners. It is important to understand that mistakes cannot be completely avoided. Thus, an attempt to "eliminate" mistakes generally results in hiding them until they are so large that they become devastating.

This is what precipitated the financial crisis of 2008. A long history of regulations that consolidated power in major banks, and policy decisions that attempted to "fine tune" the economy and seemingly avoid a crisis resulted in a financial disaster that is beyond the ability of most people to comprehend. The thing that is important to understand is how the financial crisis emerged from an attempt to disguise risk and hide errors instead of any particular lack of regulation.

The financial system was built for "stability" since each bank purchased a "diversified" portfolio of debt from other banks. This meant that all of the major banks had access to a regular stream of capital... until investors became justifiably concerned that they might not be paid back. This happened because the banks financial decisions became progressively more risky, until the plank finally broke and Bear Sterns announced they would not be able to pay their financial obligations since nobody would lend them new capital, and their investment portfolio contained a large amount of toxic debt. What precipitated was a freeze of credit markets as all the players became concerned that they would lose their investment if they loaned to the troubled entities.

What all of this demonstrates is how is necessary for a robust business, life, and economy. Making mistakes is how we learn. It is much better to learn from small mistakes than from large ones, and a system that is built around steady course-correction from many small errors is much more robust than one that attempts to conceal errors and mistakes with bailouts and guarantees. Sooner or later these concealed risks will become too large to conceal, and will result in a collapse.

An example of this phenomenon in the physical world is to consider driving an automobile. If you run into a wall at 5 mph, it will cause a small degree of damage to your car, but will not result in any permanent harm. Furthermore, it will serve as a legitimate warning to avoid driving habits that could cause collisions. In fact, you could reasonably sustain 100 of these 5 mph collisions without significant adverse effect, outside of the nuisance associated with re-painting your bumper. However, let's assume that a new technology designed to avoid collisions warns you when you are about to hit something. Furthermore, let's assume that the quality of your automobile rises such that you can run at very high speeds and receive preliminary warning before a crash occurs.

Carrying this analogy further, let's assume that you are able to drive your car at 500mph, achieving incredible mobility and with no perceived risk because of your warning system. You have increased the efficiency of your transportation by a factor of one hundred. You are a genius of efficiency and mobility... until something in the system doesn't work. What happens when your warning system does not signal correctly while you are moving at 500 mph? The answer is that you become involved in a crash that is fatal to you, everybody riding with you, and everybody around the area of the accident.

Now take this same principal, and apply it to the entire financial system. What results is the situation that precipitated the financial crisis of 2008. The way that future disasters of this variety can be mitigated is by ensuring that mistakes are localized instead of centralized. In the realm of our personal lives, this means taking more small risks. This allows us to learn from our failures and evolve them into future successes. It also avoids a situation where years and years of playing it safe back us into a corner where we must take large risks all at once, and place our entire future on a single roll of the dice.

In the end, mistakes and errors are impossible to avoid. They can be hidden or concealed for a certain amount of time, but they will eventually come to bear. The key principal for people to understand is not how to avoid mistakes, but how to ensure that the impact of our mistakes stay small and localized so that we can learn from them to achieve more in the future. Ultimately, each of us are responsible for our own personal, professional, and financial future. In order to get there, it turns out that a perpetual cluster of (minor) errors is a necessary part of the growth and development that we all need to reach our goals.

Sincere Thanks,
Douglas J Utberg, MBA

Founder - Business of Life LLC:
http://BusinessOfLifeLLC.com/

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Email Address:SubscribeEconomics Article FeedFind More ArticlesSearchSimilar Articles7 Financial Blind SpotsBuild a Better TeamLooking For More Business Deals That Need None of Your Dollars? They Are Out There, Just AskLaunching a Sales Presence in the Global Distribution ChannelHome LoansRecent ArticlesHow To Solve The Homeless SituationProgressivism Isn't Progress, VIIIHow Secure Is Your "Secure" Job?A True Comparison Of Increasing Debt Between Bush And Obama AdministrationsHow To Compete With ChinaWould Einstein Think Us Insane?What Will Happen If Greece Defaults?The US Recovery Is Producing SurprisesA Sigh Of Relief For The Economic Status Of The USHuman Nature, Capitalism, and Greed and Power DiscussedSubmitted On January 20, 2012. Viewed 9 times. Word count: 822.

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What Will Happen If Greece Defaults?

ByJon Safer

We all know that Greece can't pay it's debts and, as such, sooner or later it's going to have to default.

When it does, as many financial analysts say, the situation is going to be relatively similar to what happened in the United States in 1998.

Except much worse.

Before we move on, let's go back two steps and talk about what a default actually is.

Let's say you've taken a student loan that for some reason you just can't pay back. You're going to get your regular notices in the mail, maybe a few phone calls or emails, and if you're unable to make your payments for the period of 270 days, the loan is going to go into default.

The situation will then be reported to all of the credit bureaus in the United States, and it will become almost completely impossible for you to get another student loan (or any other kind of government student aid, for that matter, be it on the state or federal level.)

As a student, you're going to be almost completely grounded.

So, what will happen with Greece?

There are at least a few things worth mentioning.

First of all, its national debt will be restructured, in which case some of Greece's creditors will take massive losses. This, obviously, means that at least part of the principal debt or interest will never be paid back. When that restructuring is completed, Greece will most likely go into what's called restrictive default.

When that takes place, the European Central Bank will no longer accept Greek bonds as collateral to loan money to the local banks, and when that happens, there's a disaster in the making.

It is speculated that Greece has over one hundred billion Euros in bonds, but its banks will be pretty much immobilized as they won't be able to get the money they need to function.

So we're in for a crisis.

What's more, since it's very difficult to implement anything similar to the Troubled Assets Relief Program (which, by the way, was put in place by the U. S. to give the nation's banks money so that they could keep operating), we're looking at what many financial experts call every man to himself in Europe.

There's no central government which could institute TARP, or anything similar, in Europe, so unless the European Union or some other countries decide to get more involved financially than they are now, Greece, and even the whole continent, will never be the same again.

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Email Address:SubscribeEconomics Article FeedFind More ArticlesSearchRecent ArticlesHow To Solve The Homeless SituationProgressivism Isn't Progress, VIIIHow Secure Is Your "Secure" Job?A True Comparison Of Increasing Debt Between Bush And Obama AdministrationsHow To Compete With ChinaWould Einstein Think Us Insane?A Cluster of (Minor) ErrorsThe US Recovery Is Producing SurprisesA Sigh Of Relief For The Economic Status Of The USHuman Nature, Capitalism, and Greed and Power DiscussedSubmitted On January 21, 2012. Viewed 10 times. Word count: 419.

MLA Style Citation:
Safer, Jon".".21 Jan. 2012EzineArticles.com.26 Jan. 2012 .APA Style Citation:
Safer, J. (2012, January 21). . Retrieved January 26, 2012, from http://ezinearticles.com/?What-­Will-­Happen-­If-­Greece-­Defaults?&id=6832734Chicago Style Citation:
Safer, Jon "." EzineArticles.com. http://ezinearticles.com/?What-­Will-­Happen-­If-­Greece-­Defaults?&id=6832734EzineArticles.com© 2012 EzineArticles.com
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