Recovery or Reinvention?

It's hard to watch or read any news report without some mention of the ongoing economic "recovery". Jobs, housing, production, productivity, and similar statistics inundate us in trying to explain the continued malaise while searching for some sign of improvement. Nothing surprising there, I'd say, but I can't help wondering whether the term "recovery" is appropriate. I won't waste your time (nor mine) re-plowing the ground in describing how we got to where we are. We all know that song, so let's spend a few minutes looking at how this extrication differs.

In past recessions, workers were laid off as production was reduced. Then, as the economy rebounded, workers were recalled and production returned to previous levels. In other words, the economy recovered. This time is different for a myriad of connected reasons. I'm not an economist so many of the subtleties escape me, but bear with me as we take a look at some of the major pieces of our dilemma.

Housing: It all started with offering unqualified buyers the opportunity of owning their own home. "Don't worry. The value goes up so fast that you can sell when your payment becomes too high and still walk away with money in your pocket." As the economy slowed, buyers became scarcer, adjustable mortgage payments went up, and the foreclosures began. It didn't stop there, though, because construction fueled much of the economy so, as it slowed, other jobs were eliminated. Today, more stable, qualified, buyers are slipping into the world of foreclosure, short-sale, or bankruptcy.

Many distressed properties are yet to be placed on the market by the banks to prevent even deeper cuts in selling prices so we can expect this glut of under-valued homes to continue for a good time. Many caught up in this whirlwind may never buy a home again. Some won't be able to even consider it for years until their credit reports improve, but that may still not be long enough for the demand to outpace supply. 

Banks: Banks are not in business to loan us money. They're in business to make money. Presumably, the TARP funds were meant to be used as a primer for our economic engine. That wasn't part of the contract, though, and the banks hoarded their funds to cover future losses connected with the toxic assets incurred during the mortgage binge. In the meantime, they could be used to inflate the bottom line and provide even larger bonuses to the executives.

No, banks are not our friend, nor will they ever be. Do not expect the loan requirements to suddenly vanish. Money will continue to be loaned under highly restrictive terms resulting in a prolonged period of stagnation.

Jobs: While many of us are still working, wages have stagnated. Discretionary cash is scarcer and most are now limiting purchases, big and small. The ability to draw from a home equity line of credit is all but gone as home values have lowered and the equity terms have been altered commensurately. As we reined in our spending, the economy shrank further, resulting in more job losses. And, as more lost their job, foreclosures and their related vehicles soared. Unemployed and underwater: a lethal combination, financially speaking. In looking for new work, many considered relocation, but how does one relocate when one cannot sell their home? And, should they be able to sell, it will fetch a price so low that no gain can be realized to finance the relocation.

And, when better times arrive, many of those lost jobs will not return. Some were replaced by technology...others by the increased productivity of co-workers afraid of finding themselves on the street, too.

Uncle Sam: Historically, government stepped in and provided jobs and benefits to those caught up in the clutches of a recession or, worse yet, a depression. But our generous Uncle has no money, either, and seems unwilling to “borrow” from a future where better days lie. So no short-term assistance, no long-term investment seeking the next best thing since sliced bread. Just a promise of better days to come.

The economy that we all grew up within was based on consumerism. I'm not so sure that the immediate future will include masses of folks scrambling to buy the latest and greatest doodad. We’re in for a major realignment of our economic model as folks consume less regardless of their personal bank balance. I'd say that we're entering a period of reflection, reorganization, and reinvestment in our own quality of life. Smaller homes, greater savings, new careers. In other words, a reinventing of how we define ourselves, our economy, and what is important to each.

Such a transformation takes time under the best of circumstances, but the continued mantra of "economic recovery" seeks only to delay any real progress as it attempts to reassure us that things will soon return to normal. Only when we accept the fact that established definitions of jobs and housing and standards of living are passé will we begin the process of economic reinvention. And the sooner we get started, the better.