Our economy has been doing poorly (to say the least) for the past 2 years, and quite frankly, I'm getting tired of it. But I shouldn't be complaining, and neither should anyone else, because the Fed has already done what they were supposed to- stabilize the economy by preventing our financial structures from crumbling into pieces. Had the Fed not taken on so much debt and bought out everything from GM to mortgages in order to save our economy, it would have deteriorated. Our economy could have crumbled to the point of having semblances of a "new" economy- which has volatile prices and high uncertainty.
Yes, we are in a whole lot of debt- about $3 trillion. Yes, we have a national unemployment rate of 10%- and still some states have higher unemployment rates than others. Yes, there is slight inflation (0.1%) in December and slight decrease in capacity utilization- but, there is still hope for recovery because the Fed is starting to feel safe enough to stop buying up mortgages and throwing out stimulus packages. Even though the Federal Funds Rate may not be increasing for the next few months, the slowing down of government intervention is a sign of the economy stabilizing and possibly even beginning to recover.
Now the big question is: What will our recovery look like?
By picturing our economic growth as a function of time, our recovery may look like 4 different shapes:
1. V
The V-shaped recovery is the ideal recovery mode, because it shows that although the economy tanked very quickly, it will also rebound very quickly. In order for our economy to recover in this "V" shape, we will need to see at least 6%-7% growth asap, which is highly unlikely seeing that our economy has only been stabilized recently and is barely experiencing any growth.
2. U
Now that we've hit the bottom (*fingers crossed), we might just stay here for a while. The economy might like to plateau on us for a while, take a break from production, and then come back up to where it was before the recession. Since the Fed has basically done all that it could to stimulate the economy, and no additional plans have yet been made, it seems like the U-shaped recovery might be our best bet. Essentially, the U-shape recovery will require us to just wait it out.
3. W
Although, another likely way the economy may form is in a W-shape. When people stop being frugal and start living again, we may see some initial growth. However, this will take time, and since our capacity utilization has been decreasing, a grow in demand may create a bottleneck effect, caused by a delay in hiring, a delay in production, and etc. As quickly as our economy may recover, the bottleneck created by today's layoffs may bring us back down until businesses have shaken off worries of low sales and begin producing more again- hence the second part of growth on the W.
4. L
The L-shaped recovery is the scariest mode our economy may enter. Let us all pray that we do not enter this state, because I hardly consider it a recovery. Basically, the economy has fallen into a recession, but who is to say that (God forbid) it won't stay that way. In the L-shaped recovery, our current economic state will become the "new normal." Instead of 4%, our "natural rate of unemployment" may become 10%. Our country may experience low production, high inflation, and high deficits for many years to come. This type of economy is synonymous to underdeveloped countries, which means our standard of living may substantially decrease.
I daresay that our government would not let this happen to us, but the Fed can not make the economy recover alone. Our country needs the help of business and consumers alike to start trusting that the economy will pick up. Now, I don't mean start spending like crazy and get yourself into a lot of debt. What I'm trying to say is, now is the time for us to start supporting our country's approach to recovery rather than bashing the Fed for every other thing that we may not agree with. There is no better time to get your voice heard.
As Maya Angelou said,
“If you don't like something, change it. If you can't change it, change your attitude.”
Don't complain.
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