The return of prosperity, part I

The Return of Prosperity – A Three Part Series.
Part One: An objective View
Part Two: The good signs
Part Three: What to do right now!

Part One: An Objective View.

“If it ain’t bad, it ain’t news”
-Unknown reporter at the scene of Joey Gallo’s murder, April 7, 1972.

When it comes to finances, nothing is all bad or all good, but the economic cycle will always rule. These cycles have been around for centuries, ever since people began measuring such things. The current problem is that the media exacerbates the bad news, clouding every positive sign that comes up, and emphasizing every negative item. The result is that it makes recessions appear more than what they are, impacting people’s psyche, overwhelming them with negativity and promoting feelings of helplessness and despair that hangs over people’s lives and makes everything worse.

Sure, recessions are not good, and this one was especially bad. But it’s going away, and all the bumps along the road notwithstanding, good times will surely return, you just won’t read about it in Newsday or the NY Times, except maybe buried on page 18, nor will you hear it on CNN or CNBC. Remember bad times never last, and neither do good times, the state of the world is change and every boom time eventually ends while every recession carries the seeds of the next upturn.

The negative pundits say it’s never been this bad – but that’s not what history tells us, and the lessons of history are the only real facts we hold. Let’s take a look at days gone by, previous recessions, the bursting bubbles that caused them, and how they ended:

1953: Ike was president, Korean War just ended.
Causes & bubbles: Post Korean War inflationary forces and restrictive monetary policies.
ENDED: 1954-1955

1957: Ike still president, Elvis is King, Sputnik just launched.
Good times since last recession: 3 years
Causes & bubbles: Same as 1953, actually a delayed “Double Dip” recession.
ENDED: 1958-1959

1973: Nixon was President, long lines at the gas pump, the end of cheap gas and 7 miles per gallon autos.
Good times since last recession: Twelve Years
Causes & bubbles: Increased spending from Vietnam War and social programs (Great society legislation from Lyndon Johnson – Sound familiar?) Stagflation and the first Arab oil embargo.
Best quote that never-came-true: “We’re going to run out of gas in eight years and we’ll be in the second Great Depression by next year.”
ENDED: 1975-1976

1980: Carter was president, American hostages held by Iranian revolutionary zealots.
Good times since last recession: 5 years
Causes & bubbles: Iranian revolution leading to higher oil prices & global shortages. Rampant inflation reached above 12% for the first time in US history. Savings & loan “debacle” with massive bank failures from bad real estate loans, real estate crash. Like Yoggi Berra once said, “it’s déjà vu all over again” isn’t it? Let’s pause and take a close look at this one, because folks, IT WAS MUCH WORSE THAN TODAY!

So what happened back then?

· The Feds tightened monetary policy considerably and raised interest rates to previously unheard levels.
· 18% CD’s and 22% mortgages
· Massive government spending (28 years before Obama)
· Trust Resolution Corporation was formed to handle bank insolvencies, the same TRC that is used today to handle the current crisis.
· Chrysler bailout & the rise of Lee Iacocca

Best quotes that never-came-true:
“Vietnam has taken away our confidence. We’ll be a minor power in 10 years.”
“This is the beginning of another “Great Depression.”

ENDED: 1982-1983 followed by seven years of prosperity

1990: Bush I was president, Desert Storm going full throttle.
Causes & bubbles: Residual effect of stock market crash (22.6% in one day – Déjà vu again!) Spike in oil prices from Gulf War, increasing inflation and restrictive monetary policies to crush inflation.
Best quote that never-came-true: “We could be seeing the beginning of another 1930’s style depression.”
Time since previous recession: eight years
ENDED: 1991-1992

2000 – 2001: Bush II was president, the millennium came around and Y2K turned out to be the biggest bust.
Good times since last recession: Ten years!
Causes & bubbles: Collapse of Dot.Com bubble and technology stocks. The 9/11 attack.
Best Quote that never-came-true: “By the end of next year we’ll be in another Great Depression.”
ENDED: 2003

2008 – 2009 Obama first black/white president elected in America.
Good times since last recession: seven years.
Causes & bubbles: People buying beyond their means aided by commission hungry brokers and banks. Overblown & overleveraged real estate prices. Packaging of bad loans (Sub-Primes) into “toxic” derivatives, bursting of the real estate bubble, lax financial regulations and inept federal and state enforcement
Good times since last recession: Seven years.
Best quotes that never-came-true: About a thousand of them involving the return of the Great Depression. The Depression is the greatest thing that ever happened to pessimists and alarmists. If they didn’t have it they’d have to resort to apocalypses, plagues and famines.
Duration: Right about now, I’d say.

Okay, I think we’ve established that we’ve been down this road many times and the world isn’t ending, and who knows, maybe next year we’ll get the world cup for soccer.

Next installment: Positive things happening around you right now that the press will never tell you. It’s not BS, or pie-in-the-sky, but solid economic facts.

Patrick P. Astre, CFP, EA, RFC is a financial author, advisor, and Enrolled Agents representing taxpayers rights before the IRS. His office is on Rt 25A in Shoreham and he welcomes your questions and comments. You may reach him at his office 631-744-9100 or his website www.prosperousboomer.com Subscribe to his free newsletter through email at his website.