The Good, the Bad, and the Ugly......
The past few weeks have created new hope in the American economic system. The stock market has rallied and the Dow Jones Industrial Average (30 largest publicly traded companies) is now in the black (up from close Friday Dec. 26th to close May 8th). The stress test results were better than expected and the jobless rate now at 8.9 percent is showing signs of leveling off. The signs of a turnaround are showing 18 months after a crash that will either be remembered or repeated.
Although this news sounds good, history will tell you that the worst years of the Great Depression were 1932 and 1933, well after the 1929 stock market crash. The Federal Reserve has learned a lot since then and taken some steps in the right direction, and Federal Reserve Chairman Ben Bernanke knows we have not made the turn quite yet. "Even after recovery gets underway, the rate of growth of real economic activity is likely to remain below its longer run potential for a while," he said is a speech on May 6th.
The market also needs to be considered, even though the Dow Jones Industrial Average is up in some ways it is still down over the last decade. You would also hope that pumping hundreds of billions of dollars into the system would result in a stock uptick, much like an oxygen tank for the lungs of a tired runner.
The other problem and this concerns us college students (more than Greek bashing and asbestos alike) is unemployment is expected to remain high for some time, and with less small businesses being created it could be a year or two before unemployment falls. Most forecasts predict unemployment will peak around ten to eleven percent. So be prepared to expand you search for “good enough jobs.”
If this sounds like bad news, you could argue there is potentially worse news. With the current economic climate, political power has become the new big bank CEO in terms of playing the game and making the rules, let’s not trade one evil for another. Treasury Secretary Timothy Geithner told the media in April, “When, in the future -- or I'll just say, if, in the future, banks need exceptional assistance in order to get through this…And where that requires a change of management of the board, we'll do that.”
The United States Government is not a majority shareholder of any banks, (yet). Even mentioning they will replace management is something that should not be tolerated for long. If Bank of America wants new management, they are allowed to vote on it at every shareholder meeting, and just last week they removed Ken Lewis from his position as Chairman (but kept him as CEO). If the Treasury or any other government department were to override the intelligence and rules of investors, this would be a great catastrophe. With General Motors, politicians became larger than life by firing Rick Wagner, then CEO of General Motors. However, General Motors is going out of business, while the banks are not.
Famous economist Milton Friedman once said, “The greatest threat to freedom is centralized power.” Friedman also mentions the government can do many great things and improve the lives of many with standard and uniform rules but the problem that occurs is in his words, “the substituting of uniform mediocrity for the variety essential for that experimentation which can bring tomorrows laggards above today’s mean.” Let’s hope leaders are not chosen as cabinet members or handpicked via the spoils system, or else we will see how those, “below the mean” could ruin what could be a great turnaround in the economy in 2010.
