Fantastic WaPo Front Page Article Characterizes The Current State Of The Economy

October 28, 2009 at 1:57 pm  ·  Category: Macro Economics

Over the past year, the U.S. government has thrown almost every tool at its disposal toward making the economy grow again.  And it has worked, at least for now.

The trillion-dollar question for the economy now is: What will happen when those government supports are gone?

“Economy Is Kick Started, But Can It Motor Ahead?”, Neil Irwin, The Washington Post, October 28, A1

……

The patient is out of intensive care, but is still highly medicated.  So you don’t know how much of this growth is driven by short-term stimulus and how much of it is self-sustaining.  My guess is this is going to be the best quarter of growth for a long time.

– David Shulman, senior economist at the UCLA Anderson Forecast, quoted in “Economy Is Kick Started, But Can It Motor Ahead?”, Neil Irwin, The Washington Post, October 28, A1

I have been wracking my brain and doing some soul searching over the last couple of weeks trying to figure out what, if anything, I might have gotten wrong or missed.  This rally has surprised me in its strength and duration and I’ve been wrong time and again in predicting its imminent demise. 
 
My daily comprehensive surveys of economic and financial reports, print and online media, and blogs, persuaded me that the fundamentals did not support a new bull market.  Hence, it had to be a bear market rally that would end at some point, though the exact timing is always elusive.
 
Within the last week, however, new understandings and integrations have made the powerful character of the rally intelligible and comprehensible to me.  To state it succinctly: The barrage of government programs has worked in putting a floor under the economy – for now.
There was a tremendous article on the front page of today’s Washington Post characterizing the recovery and the current state of the economy.  It articulates the same understanding I came to five weeks ago after a good deal of intellectual thought and struggle.  I’m surprised to see such a cogent analysis on the front page of a national newspaper.  It seems that this view is becoming more widespread and understood.  I highly recommend reading the article in full.
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