This blog post originally appeared on RealMoney Silver on Feb. 5 at 8:12 a.m. EST.
-- Doug Kass, "A Couple of Concerns" (Dec. 9, 2009) I have expressed my doubts that the domestic economy began a normal cyclical expansion in the spring of 2009 that is capable of matching past recoveries of over 40 months in duration. I strongly disagree with this conclusion as the past cycle was not a traditional cycle. Rather it was an unprecedented credit-driven cycle characterized by an excessive and abusive use of debt/leverage at nearly every level of the private and public sectors. Following the artificiality and unusual nature of the last ("free") credit cycle, the current expansion, which is now deprived of much of the steroids that formed the foundation of that growth, seems likely to disappoint an increasingly confident cabal of forecasters who project a smooth and self-sustaining recovery. Moreover, I have submitted that the credit aftershock of the last cycle would have a long tail and would likely continue to haunt the economy and limit economic growth. For example, state and local governments and even countries outside the U.S. should no longer be steady contributors to growth as they have been in prior recoveries. Instead they face the dual challenges of extended balance sheets and an imbalance between receipts/expenses and imports/exports. As well, I have argued that the securitization markets and the shadow-banking industry, omnipresent in the last cycle, would not be the same driver to growth going forward. Not only will housing, the consumer and small businesses suffer from less available credit, but so will large companies that had previously relied on the (healthy) securitization markets to finance their own growth by laying off receivables to others. Loading Comments... 1 2 Next › Last »SHARE:
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