Are we in for a longer recovery?

Aug 16, 2011

Is the economy recovering … or heading for another recession? Uncertainty has been growing in recent weeks with conflicting economic indicators and high volatility on Wall Street.

On this week’s "Money Matters" with financial commentator Greg Heberlein and KPLU’s Dave Meyer, Greg changes his mind about how soon the economy will recover. Instead of a 5 to 10 year recovery, Greg thinks it'll be more like 10 to 15 years.

Here are Greg's notes for this week's discussion:

It is time to reassess our position. In 2008, as the recession deepened, I suggested that the popping of the worst bubble since 1929 would necessitate a 5- to 10-year recovery. I must now admit that was too optimistic. Sadly, 10- to 15-years may be in the offing.

We’ve paid a dear price for the world’s recent thirst for higher returns paid for by excessive debt. We are learning once again that for every action, there is an equal and opposite reaction. In investing, it is called reversion to the mean – exaggerated returns mean exaggerated slumps.

Evidence earlier this year suggested the recession was easing and better times were ahead.  Turned out to be a head fake.

But it is not the time to abandon all hope. We will not all be standing on the corner selling apples.  American ingenuity will be adapted to the world-wide financial crisis. Americans will go back to work to find solutions.  Our own economy will pick up.

What will be a slower process than we would wish, homebuyers will multiply. The construction industry, so vital to a recovering economy, will show signs of life again. Citizens’ needs for goods and services will be replenished. A bleak outlook for the stock market’s rebirth will be replaced by blossoming prices.

In a sense, the worst is over – the bubble has already burst. The massive reclamation project is under way.

It may sound Pollyannaish, but unless you believe the collapse of the world’s premier economy is upon us, recovery is certain. Our parents and grandparents survived, even prospered after the Great Depression. We can survive its reincarnation.

When Great Britain faced collapse in 1940, Winston Churchill spoke some of his most memorable words:  “We shall not flag or fail. We shall never surrender.”

Surrender should not be in anyone’s lexicon.

Dave, however, prefers to quote Tim Allen in Galaxy Quest:  "Never give up! Never surrender!" 

Money Matters” is a KPLU feature covering the economy, investments and more. The feature is published here and airs on KPLU 88.5 during Morning Edition and All Things Considered on the second and third Tuesdays of the month. It also airs on Weekend Saturday Edition.