By Dave Lindorff

If you listen to the happy-talk folks at Treasury and the Fed, and
on the tube, you’d think things had finally turned a corner. The
economy grew at a 3.5% annualized rate in the third quarter ended
September 30. “The Economy is Back in Gear” shouted the headline on an
article by CNN senior writer Chris Isadore. “The recession ended
unofficially in September,” said a reporter on NPR.

There was some mention of the fact that earlier in the week there
were reports that consumer confidence had fallen, foretelling a
sluggish Christmas retail season, and that new home sales slipped an
unanticipatedly high 3.6% in September, when analysts had been
expecting a rise in sales. Meanwhile, new unemployment claims filed
during the third week of October jumped to 531,000, well above the
predicted 520,000, indicating that the official unemployment rate is
likely to top 10% in the next Department of Labor report due out in
early November. As well, fully one-third of the nation’s homeowners
were now said to be “underwater,” meaning that their outstanding
mortgage balances are greater than the current value of their homes.
Not surprisingly, foreclosures are continuing to surge.

How to explain this seeming oxymoronic situation? Well, that
positive economic growth figure, which comes on the heels of a 6.4%
decline in GDP in the first quarter and a .7% decline in the second
quarter, is, according to government analysts, actually largely the
result of two government stimulus programs—the “cash for clunkers”
program that induced people to rush out and buy a new car (usually a
much smaller, cheaper and, for the car makers, less profitable one than
they had been buying in prior years), and the $8,000 new home tax
credit, which led a lot of people to rush out and buy a first home.

The thing about those two stimulus programs is that they don’t so
much expand economic activity as they push it forward. That is to say,
a person who takes advantage of the cash-for-clunker program is
generally someone who owns a worn-out junker and needs to buy a new
vehicle anyhow, so what the government subsidy does really is just push
that purchase forward. Once the program ended, sales of cars plummeted
(not to mention that the bulk of the payments went to people who
purchased foreign cars, so the economic boost was just for dealers in
the US, not car makers). The same is true with houses. Very few people
would make the decision about whether to buy a home or not based on
just $8000, but the availability of an $8000 government subsidy for a
limited time would lead people to push forward their plan to purchase a
home.

What that means is, don’t count on this “recovery” to last into
next year. The cars that needed to be bought have been bought, and the
homes that people wanted to buy have been bought. The car subsidy is
gone now, and even extending the home buying subsidy, as the realty
industry lobby is pressing Congress to do, isn’t going to induce that
many more people to buy.

Meanwhile it’s worth noting an oddity about this “recovery” being
trumpeted in government and media. The relationship between the dollar
and the stock market has become very strange. If you look back at
stories on these two things to 2007, before the financial crisis hit,
and earlier, you’ll see myriad articles explaining that the dollar and
the US stock market tend to move in tandem. This was always explained
as being because as the dollar strengthens, foreign investors want to
put their money into dollar-denominated assets. Similarly, if the
dollar weakened, analysts would write confidently that the stock market
would be hurt as investors pulled their money out of US equities to
invest in markets denominated in appreciating currencies.

Now, the analysts say that as equities strengthen, the dollar will
fall, but if equities fall, the dollar will appreciate. The reason for
this new inverse relationship should be cause for considerable alarm.
Why? In fact, it turns out that the last eight months of a rising
equities market has been largely the direct result of a shrinking
dollar. This is because so much of the sales and earnings of companies
in the S&P 500 and the much narrower Dow Index are earned overseas,
denominated in foreign currencies, but accounted for on the books of
these US-incorporated firms in dollars, that as the dollar declines in
value, corporate sales and earnings appear to be growing. Reportedly,
as much as 80 percent of the appreciation in the S&P Index since
last March 9 when the market hit bottom can be attributed to the
dollar’s fall against major world currencies.

Financial writers and reporters on TV don’t mention this tectonic
shift. They just report the new relationship (Stocks up, dollar down,
stocks down, dollar up) as though that’s they way it’s always been. But
actually, this is a phenomenon has normally ben characteristic of Third
World, so-called “developing” economies. That since the end of 2008 it
has become characteristic of the US economy should be cause for concern.

So don’t be conned by the happy talk salesmen at the Fed and
Treasury and in the White House, or by their propagandists in the
newsmedia, who are trumpeting the latest GDP growth figure as a sign
that the recession is over, apparently in the hopes that people will
run out to the mall and start spending (in those remaining stores that
don’t have their windows taped or covered in plywood). What we’ve seen
was a blip on the chart, engineered by a couple of “going out of
business” sales by the car and housing industry.

Real unemployment—measured the honest way it used to be 30 years
ago, to include those who have given up looking for work or who are
working part time involuntarily—is hitting 20% (for those who are bad
at math, that’s one out of five working-age Americans). Foreclosures
are hitting a record. Half of laid-off workers are cashing out their
401(k)s in order to buy food. State and local governments, both major
employers, are hitting a wall as tax collections plummet and federal
stimulus funds run out. This is not the foundation for a renewal of
economic growth; it is the precondition for a renewed or prolonged
recession.

And if the dollar continues its slide, which is likely given the
US’s huge budget deficits and trade deficits, as well as the Federal
Reserve’s inability to raise interest rates (a move that could
strengthen the dollar but which would crush the economy), all those
things that Americans buy abroad which are no longer made at home, as
well as the oil that is imported, will cost that much more, driving
consumers further into the hole. And remember, 70% of US GDP is
consumer spending, a result of our decimation of our industrial base.

Recession ending? Don’t bet on it.

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DAVE LINDORFF is a Philadelphia-based investigative journalist.
His latest book is “The Case for Impeachment” (St. Martin’s Press,
2006). His work is available at www.thiscantbehappening.net