Tim Duy — The Recovery is Real

At the risk of sounding overly optimistic, I am going to go out on a limb: The recovery is here to stay. Not "stay" as in "permanent." I am not predicting the end of the business cycle. But "stay" until some point after the Federal Reserve begins to raise interest rates, which I don't expect until 2015. This doesn't mean you need to be happy about the pace of growth. But it does mean that a US recession in the next three years should be pretty far down on your list of concerns.

Unless Congress sabotages it, a big bank blows up, there is another significant "event" like 9/11 or Katrina, or there is an international crisis — like in the EZ — that scuttles the global economy. Let's see, did I forget anything?

Tim Duy's Fed Watch
The Recovery is Real
Tim Duy

My view is that the problem was not the business cycle in 2008, but rather the financial cycle when the consequences of Ponzi finance unraveling went viral and took down the real economy. Nothing has been done to substantially rectify the conditions that lead to the the crisis, and in fact, many of the conditions have become exacerbated, including further bank consolidation, increased moral hazard, and a pledge by the administration not to investigate wrongdoing or interfere with "business as usual." This is a recipe for eventual disaster, either in a second leg down in the present crisis or in the next crisis. Meanwhile, the US heads down the road of Japanification, if you can call that "recovery." But there is no denying that the numbers look good if one doesn't look to deeply.