···

ยทยทยท

Monday, September 21, 2009

James Grant on the "V-shaped" recovery

One of the most talked about economic stories of the weekend was Jim Grant's piece in the Wall Street Journal, "From Bear to Bull".

In it, Grant discusses the rationale for a rather zippy (or "V-shaped") recovery following this steep recession that began (officially) in late 2007. Here are some excerpts from that piece:

"The Great Recession destroyed confidence as much as it did jobs and wealth. Here was a slump out of central casting. From the peak, inflation-adjusted gross domestic product has fallen by 3.9%. The meek and mild downturns of 1990-91 and 2001 (each, coincidentally, just eight months long, hardly worth the bother), brought losses to the real GDP of just 1.4% and 0.3%, respectively...

...Americans are blessedly out of practice at bearing up under economic adversity. Individuals take their knocks, always, as do companies and communities. But it has been a generation since a business cycle downturn exacted the collective pain that this one has done.

Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: "[T]he most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period."

If you'd like to read more, see the full piece at the link above.

Related articles and posts:

1. Jim Grant on CNBC: get set for inflation - Finance Trends

2. James Grant on Bloomberg TV - Finance Trends

3. "Jim Grant: Ringing the Bell at the Top?" - Financial Armageddon.

4. The Aftermath of Financial Crises - NBER.