As of 2011 comes to a close, investors continue to be bombarded by news of daily economic and political problems. In the United States, housing prices remained depressed, unemployment rate remains stubbornly high, and the politics surrounding the upcoming presidential election and taming the federal debt have raised questions about the political will to fix the problem. In Europe, the highest level of debt is a dangerous economic growth climbing, weakened and investors questioning the ability of politicians to put in place an effective solution to the crisis, the euro on time, and durable. Is it any wonder that investors lost hope?
While we believe that the US economy will continue to recover, and Europe’s debt crisis will eventually be completed one way or another, the event highlighted how it was difficult to predict the direction of the market in the short term. It is more important than ever to use history to place in the context of today’s events and to focus on indicators of long-term value.
A common concern for the US economy is that this recovery looks very different from the others since the second world war. In fact, if you look for the last five U.S. recession, You see a consistent pattern where this recovery has been much slower in terms of economic growth and unique in terms of the lack of an increase in the unemployment rate.
However, the last five U.S. recession probably is not the most appropriate comparison. What makes it unique among the 2008 downturn post-Second World War a recession is a severe financial crisis and global contraction that followed it in sync. To better understand the road to recovery, it is necessary to look at a broader set of economic crisis in the country as well as from time to time.
In last year’s Federal Reserve Symposium in Jackson Hole, Wyo., United States Economist Carmen m. Art and Vincent r. Art presented a working paper entitled “after the Fall. The author saw severe post 15-Second War of the world financial crisis in the developed and developing economies and three synchronous global contraction. Find disquieting is that while the greatest impact of this crisis occurred in the first few years after the event, the negative effects persist for a decade or more full. In particular, they found that over the next decade, economic growth is likely to be around one percent slower and unemployment tends to be the average age of five per cent points higher. The real house prices tend to be 15 to 20 percent lower at the end of the decade compared with the year before the financial crisis began. Also of note, despite massive fiscal stimulus from monetary policy, reduce and the devaluation of the currency, inflation is usually lower, not higher.