Misguided Faith in an Economic Recovery

We watched last night the rows of cars below our balcony, snaking their way out of the pollution and congestion of South America’s second largest metropolis, out into the peace and calm of the surrounding campos and estancias.

The usual rabble and riff-raff have left for the long weekend. The city is empty. And quiet.

Still, there is reckoning to be done…

Markets continue with what Eric Fry yesterday dubbed the “everything off” trade. “Investors are dumping everything with a ticker symbol,” observed Mr. Fry. “US stocks, foreign stocks, government bonds, corporate bonds, precious metals, crude oil and almost every other commodity”…everything is “off.”

And that includes ol’ yella, gold. The Midas metal has lost about $100 per ounce over the past 30 days. It’s back to where it was six months ago.

So…what gives?

This is supposed to be a recovery, isn’t it? The cover of last week’s Economist magazine seemed to think so. (Or was it the week before?) You might have seen the hopeful image, as we did, while strolling through an airport lobby. It depicted a couple of machete-wielding explorers shining a light on a gleaming treasure chest.

“The Recovery?!!” exclaimed one of the hapless cartoon figures.


And then there was that cover of The Atlantic magazine, the one with a smug-looking Fed Head on it, obsequiously awaiting his due praise. “The Hero” screamed the headline; the accompanying subhead pondered, “Ben Bernanke saved the global economy. So why does everyone hate him?”

Another “Hmmm…”

We wonder, does one have to be a cartoon sketch — or possess the cerebral processing capacity of one — to believe the world is in recovery mode? Come to think of it, what is “recovery mode” anyway? We hear so darned much about it…but who stops to think about what it really means?

To recover from something supposes a return to normalcy, as if after some unnatural shock. One might “recover” from an illness, for example, returning to a normal state of health. Likewise, one might recover from a bad fall…or a drunken evening…or a bad fall as a result of a drunken evening. A relationship might recover after its participants get into a nasty row. A driver may recover control over his vehicle after a temporary distraction.

In any case, the term recovery implies a return to things as they once were. A return to normal. A return to average.

But what if this is not that kind of a situation? What if we are in for a new normal, and along with it, a new kind of average? What if we are, as they say, past the point of “no return”?

A third, and this time more concerted, “Hmmm…”

Imagine a stage coachman waiting for a return to normal after the introduction of the automobile. “Business will soon pick up again,” he might have muttered as a spiffy new Model T passed him by. And imagine, for one reason or another, business actually did pick up for a few days…or a week…or even a month. “This is it,” he could have concluded. “The recovery is in!”

One could make the same point with a million other yesteryear industries. But will business ever return to “normal” for members of the United Blacksmith Guild? Are we to expect a sustained upward profit trajectory in the disposable camera sector? Is a recovery on the horizon for purveyors of offline pornography?

In a word, no. These industries have had it, gone the way of yesterday’s news.

And we are all better for it, are we not? Modern 2012 Man (and Woman) needn’t fuss about with the unending annoyances of the anvil-chained life. Nor does he find cause to curse his lagging photography skills when picking up his prints from the store. Now, he simply erases the offending digital composition and snaps another shot with his phone. Likewise, he needn’t alert the local magazine vendor to every detail of his private whims and fetishes. One person’s desire is another person’s domain name.

So what about this “recovery,” then? The term implies a return to the way things were, “pre-GFC.” Our guess is that’s not going to happen.

And thank goodness for that!

The market wants debt destroyed. It wants accounts settled and moribund institutions extinguished. It thirsts for a flurry of “Lehman moments.” The market wants capital freed from tarpit-bound enterprises so that newer, fresher-faced companies, with superior products and innovative business models, can make better use of it. It wants errors punished, mistakes corrected and the lessons of the processes therein made available for all to know and to learn from.

If The Atlantic was right, and Bernanke did save the global economy, he did so only in the sense that he “saved” investors from the lessons they needed to learn. Similarly, he “rescued” the market from the evolutionary process through which it needs to go. And, having done so, the man with his hand on the dollar printing press continues to “save” us from the future we might otherwise be enjoying.

Thankfully, Bernanke can’t “save” the economy forever. Whether everyone hates him or he is universally adored, his job will one day go the way all things must do…the way of yesterday’s news.

And then, the future will be free to begin again.

Joel Bowman
for The Daily Reckoning

The Daily Reckoning