Something to be Thankful For
Greetings!
I plan on most of the content for this blog to be original material produced by myself or a few guest bloggers, but sometimes I come across an article that is so well-written I think it should be shared free of my editorial fingerprints. The Thanksgiving week commentary below from Brian Wesbury, Chief Economist at First Trust Portfolios is one such example.
I’ve followed Brian’s work for a long time and consider him to be one of the brightest minds in the industry. In this article, he offers his perspective on the amazing events of the last few years, and the reasons for his optimistic outlook regarding our economy, an outlook which I share.
If you have any questions about how current events might affect your portfolio or your financial plan, or if you want a second opinion on a portfolio you hold at another firm, you’re always welcome to contact me via phone or email. Enjoy the article, and best wishes for a happy and joyous holiday season!
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Something to be Thankful For
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 11/22/2010
We lost track a long time ago of how many times the Financial Panic of 2008 was called the “worst crisis” of the modern era. Politicians (in a rare moment of true bipartisanship!), pundits, economists, and investors all called it “the worst.” Stocks plummeted and President Bush gave a primetime speech in which he suggested we were on the brink of another Great Depression. Firms with household names collapsed overnight.
Unemployment spiked and GDP dropped faster than at any time in decades. Monetary velocity plummeted and deflation became a very real threat. It was a Panic – like we haven’t seen in more than 100 years.
And in a panic, people are willing to believe almost anything. Forecasters and analysts who had been (wrongly) predicting recession for years all of a sudden became infallible soothsayers. The press hung on their every word and their pronouncements of long-term doom and gloom were considered unarguable.
The “smartest guys in the room” and the enabling press, thought that the US economy would languish for years. The recession, they argued, would last at least through the end of 2009 and perhaps well into 2010. And once the recovery started the best we could anticipate was growth in the 1.5% to 2% range for many years to come.
As it turned out, the recession ended in mid-2009 and the economy has clearly outperformed those dire forecasts. Nominal consumption has already hit an all-time high. Real GDP has expanded for five straight quarters and will rise to a record level in the next few months. Meanwhile, private-sector jobs have grown for ten consecutive months, with a respectable 159,000 gain in October. The American economy has once again surprised the “doubting Thomases” with its resilience.
This is not the first time. The recession after Hurricane Katrina – that was forecast by the same famous soothsayers of 2008 – never materialized. More amazing was the growth after 9/11. The economy was in an official recession on that day, but started its recovery in November.
Certainly things are not perfect. Unemployment is still high and uncertainty is prevalent. And politicians are using economic weakness to argue for what they want. Republicans want tax cuts, while many Democrats (like Paul Krugman and Joseph Stiglitz) want more spending. This has created a “vacuum of political optimism” which is damaging to economic confidence.
Nonetheless, individual Americans and their companies remain resilient and are still moving forward. A certain large online retailer has created an app to scan prices at retail stores and compare to online prices. Brick and mortar retailers may not like this, but transparency and competition always helps consumers.
And as long as this process of invention and entrepreneurship is alive and well, the economy is in good hands. This is what politicians should be focused on – how to strengthen property rights, contracts and the rule of law. Staying out of the way is, and always has been, the fastest and surest way to prosperity. So, when you sit down to eat the bounty of our efforts on Thanksgiving Day, remember the resilience of this amazing country. But more importantly, remember where it comes from.
This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.
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