Early this year this column predicted that the stock market would rebound by the end of the year, and that the overall economy would be edging back from disaster.
It also predicted a growth in central government that would be almost unprecedented.
Well, all three predictions have come true. The stock market has gained back half of its disastrous losses.
The economy is no longer in free fall, although unemployment is still high, but that is a lagging indicator and may be the last piece of the puzzle to fall into place.
The third prediction, the growth in government, came true with a vengeance.
Big government bailouts, takeovers and regulation are a fact, from A to Z, beginning with agriculture and food safety, banking, cars, energy, financial firms, General Motors, housing, insurance (AIG), and right through to Z.
The debts pile up, and the government is trying to overhaul the entire health care system â one-sixth of the economy.
Unelected âczarsâ are running many sectors of the economy.
These predictions didnât come from a crystal ball, they came from a briefing from the top executive of a family of mutual funds owned by one of the investment banking and brokerage giants.
These companies, with hundreds of analysts and economists, have a pretty good handle on what is going to happen.
They just canât do much about it.
This particular Wall Street biggie came close to going under itself one frantic weekend almost a year ago. The companyâs stock was under attack.
The weekend hiatus, plus an infusion of billions of dollars of Japanese money, saved the company. By Monday it looked like the company had weathered the storm and its stock price bottomed out and turned up a tiny bit.
During the meltdown, this writer sent a series of e-mails to the company asking what would happen to millions of its customers if it went belly-up. Assurances were given that the accounts were walled off from the companyâs financial situation.
True enough, but imagine the situation: The company that invests billions of dollars of other peopleâs money couldnât handle its own investments.
A later column predicted that the food sector, particularly those companies offering good value in hard times, would come through the crisis in better shape than most of the economy.
And in large measure that has been the case. Wal-Mart, McDonaldâs, and food-related companies that offer bargains to hard-pressed consumers have done well. People may cut out luxuries, including fine dining, but they donât stop eating, and the at-home food market remains steady.
What about the future from here?
The general feeling is that full recovery will be a slow, steady slog.
No huge turnaround.
There is bound to be pent-up demand building, but unemployment is a drag on the economy.
When companies start hiring again, that will be one of the most positive signs because that will bring several million more consumers back into the economy.
Businesses have cut staff and cut costs, cut out travel, reduced attendance at meetings and conventions (except for the Produce Marketing Associationâs Fresh Summit, evidently), stopped buying new equipment and put off expansion.
Are there lessons to be learned from the past two years of economic decline, recession, bursting bubbles? Yes, but people have short memories. Very few people have a living memory of the Great Depression. Even an adolescent back then would be quite old now.
This was no Depression, but it is being called The Great Recession. What will be the next bubble? No one can say, but there will be one. Biotech? Alternative energy? Fresh foods?
This recession was triggered by the housing bubble, poor bank lending practices, strange new investment securities that no one understood; bad business practices and lack of responsibility; and the inability of many businesses to weather a downturn.
Now that the federal government is picking winners and losers and deciding which businesses get help and get to survive, real unfairness is creeping in.
- A small business that had expanded from 15 to 30 employees now faces difficulties in getting business loans from the same banks that got bailed out. These banks are averse to any risk in their loans. The small company may actually shrink.
- A retired man in the Midwest put most of his savings into the stock of a big Midwestern bank. This was a secure stock with good dividends. Then the bank made disastrous lending decisions, was on the verge of failing, and was bought out by a larger bank that got bailout money. The bank survived, but the retired manâs stock is now worthless.
The guilty won, the innocent lost. You canât run a prosperous economy using these twisted standards. Yet already the banks and financial institutions are falling back into the bad practices of the past.
What's your take on the road to economic recovery? Leave a comment and tell us your opinion.