Friday, November 13, 2009

The Key Assumption: Michelle Girard On CNBC

In a video which can currently be seen here, RBS senior economist Michelle Girard argued, in an appearance on CNBC this morning, that the US economy is now on the brink of experiencing the sort of sling-shot employment recovery which has been historically characteristic, at least up through the 1982 period.

She referenced the recent 9%+ productivity gain, and historic pickup in monthly employment of the 1982 recovery, as reasons to believe that the economy's unemployment bottom is at hand.

To me, Girard's forecast of 250,000 jobs added monthly next year illustrates the key assumption about our current economic situation.

If today's economy is like that of nearly 30 years ago, then Girard is correct. If it's not, and we are experiencing both a once-in-a-generation mismanagement of the economy, along with a radically different type of economy now than in 1982, then I believe the many other economists and pundits who disagree with Girard, will be correct.

That includes economists like David Malpass, and pundits like Mort Zuckerman.

Much as I'd like to believe Girard, I personally favor the latter two. I just think too much else has gone wrong in our current economic climate to favor a simple historical extrapolation of prior recovery experiences.

As my business partner opined at lunch the other day, we are suffering a loss of confidence stemming from the near decade-long housing bubble which was abetted by the federal government, followed by the Fed's mismanagement of its bursting, and, now, the current administration's overspending, combined with the Fed's monetizing the debt to fund that overspending.

Meanwhile, tax rates are rising, more spending is being planned and passed by Congress, while the sole source of economic activity seems to be Fed liquidity.

All of this leads sensible business people to doubt that there is much in the way of market forces for recovery which are not simply the pass-through effect of Fed liquidity and government stimulus spending.

Thus, I don't see Girard's rosy expectations coming true, because the source of the growth she envisions requires confidence that, in my and others' opinions, does not yet widely exist in the business community.

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