It has been argued that the Recession ended during the Summer of 2009.  The purported nail in the downturn’s coffin was the announcement that GDP grew by 3.5% in the third quarter.   This impressive figure has been cited as proof of Stimulus Spending efficacy and directly contributed to the recent equity market rally.

Sadly the narrative of economic recovery is a fraud.  The evidence used to weave the fiction; a mix of Government irresponsibility, deficit spending, consumer distortions and a classic “bait and switch”. 

Yesterday (12/22) 3Q GDP growth was revised down to 2.2% from 2.8% on Nov. 24th and 3.5% on Oct. 29th.  At minimum this extraordinary downward revision demonstrates the Government’s incompetence estimating economic activity.  At worst, policy makers have perpetuated an act of fraud designed to curry political gain and create the false impression of recovery.

The Government chooses to rely on GDP figures as its measure of a Recession’s duration because the metric is subject to manipulation.  The components of GDP and the accounting used to calculate its performance render it useless as an independent tool for measuring the length of an economic downturn.

Since much of Gross Domestic Product is Government activity, politicians may arbitrarily end a recession merely by spending enough money to grow the figure.  The reality that the increase is due to increased deficits and debt are immaterial to the calculation of growth.  Private sector job losses may be easily overcome by an expansion of the public sector.  Spending $24,000 of taxpayer money to entice an individual consumer to buy a new $26,000 car is rewarded through the fiction of GDP expansion.

Gross Domestic Product was positive during the 3Q for four reasons:

• Government spending increased
• Government employment increased
• Government debt increased
• Government subsidies of house and car purchases unsustainably distorted consumption

Private sector economic product declined during the 3Q.  It would have declined by more but for unsustainable, deficit-financed stimulus.  Given that private sector economic activity is the only relevant factor to consider when qualifying the duration of a recession, the downturn continues unabated.

Since the “Economic Recovery” supposedly occurred, every relevant economic fundamental which caused the crisis has continued to erode.  These include:

• Housing prices have resumed collapse
• Foreclosures continue to increase
• Unemployment has increased
• Bank lending has decreased
• Consumer borrowing has decreased

Our Government has the ability to dictate the Recession’s facade and make believe that it has ended.  But they have no control over the economy’s structural underpinnings.  The Affordable Mortgage Depression will continue regardless of manufactured GDP gains, housing subsidies and car sale incentive schemes.  Misguided politicians have only succeeded in lengthening and deepening the inevitable/necessary pain of this overdue, ongoing correction.