Now That The Recession’s Over…

Posted by Paul Vigna

Now that the recession’s “officially” over, what changes if any can we expect to see?

- I expect that tomorrow the FOMC, the rate-setting committee of the Federal Reserve, will announce that it’s going to start raising interest rates, now that the recession’s over. After all, the Fed cut its overnight fed funds rate to zero in response to the recession. If the recession’s over, it should be self-evident that a zero percent interest rate is manifestly irresponsible. So forget all this talk about QE II, about another bond-buying scheme from the Fed. It’s time to start the exit strategies and rate tightening.

- I expect the Obama administration to phase out all stimulus programs, and to scuttle the programs it proposed just a few weeks ago, now that the recession’s over. Forget about extending the Bush tax cuts. They are not needed. The economy’s expanding.

- The debate over whether or not to extend unemployment benefits will disappear on its own now that the recession’s over, as companies start hiring again and that army of the unemployed dwindles down to nothing.

- The FASB, the Financial Accounting Standards Board, reinstates the rules for mark-to-market accounting that existed before the recession started, now that the recession’s over. After all, the rules were suspended because of the emergency created by the credit crisis. If the crisis is over, it’s time to reinstate the old rules.

- States and local governments will balance their budgets again, as their revenue rises, since now that the recession’s over and the economy’s expanding citizens will see their incomes recover, which will boost the tax rolls.

How many of those things do you expect to happen? I’d put the odds on them, in order, at zero, zero, zero, zero and zero. So long as the Fed is keeping interest rates at zero, a number that in any other context would be considered dangerously irresponsible, so long as hiring remains stagnant, so long as the government is more concerned about stimulus than austerity, so long as state and local governments remain on the edge of the budgetary abyss, whatever tag we give the economy won’t matter. It’s a point John’s made a few times, and it’s worth bearing in mind as you hear people trying to talk up the recovery.

It’s going to a long, protracted, painful phase we’re going through here.