Smith Faculty Opinion Article

By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

December 14, 2009 

Recession Ends for Summers but for Who Else?

White House chief economic advisor Lawrence Summers has declared the recession over, but as with most things economic, the opinion you get depends on who you ask.

Seven million families are behind on their mortgages and at risk of foreclosure, and 25 million Americans wanting full time work can't find it. I doubt many of them would share Mr. Summer's rosy assessment of the business climate.

In the third quarter, the economy did manage to grow by about $90 billion, and Wall Street banks are divvying up $140 billion in year end bonuses on the back of $280 billion in new profits.

The unemployment rate did fall in December, because millions of Americans have quit looking for work and are no longer counted in the jobless rate.

All together, GNP is up but all the gains seem to be going to the bankers, while the rest of the economy appears shrinking and Americans keep losing their homes and jobs.

If you work on Wall Street, Ben Bernanke's near zero interest rate loans to bankers delivered an economic recovery and a joyous holiday season.

Santa Summers' sleigh seems not to stop for Americans who don't work at Goldman Sachs, where the average pay is $700,000 a year.

The $789 billion stimulus package has not created many private sector jobs, and the hundreds of billions in TARP money squandered by Treasury Secretary Geithner to bail out General Motors, Chrysler, Bank of America, AIG, and Citigroup has not reached most businesses and working Americans.

Despite mortgage rates below 5 percent, most homeowners can't refinance their homes and most businesses can't get credit. The big banks are simply holding out until mortgage and business lending rates are higher, and profits fatter, next spring.

While President Obama was collecting his Nobel Prize for deeds yet to be discovered and saving the world from American misdeeds in Copenhagen, Lawrence Summers declared America resurrected.

Yet, retailers are reporting very slow shopping for the first two weeks of December, and short of massive discounting, this holiday season is in danger of being a huge bust.

In March, Federal Reserve support for mortgage financing is scheduled to end, thirty-year rates are likely to rocket past 6 percent, and the risk of a second housing market collapse and double dip recession becomes real.

If the U.S. economy is as healthy as Lawrence Summers has declared, then I will start at point guard for the Detroit Pistons next season.

For those who don't frequent my haunts at College Park, I am but five-six and sixty one years old, but in Lawrence Summer's America, the facts are only an inconvenience.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.