What Economic Recovery Will Look Like

There is a growing consensus that the technical end of the recession is nearly over. However, because this is a banking related crisis—as opposed to something like a tech bubble crisis—many believe the recovery process will be slow. An end to the recession won’t necessarily mean an instant turn around in unemployment. It won’t necessarily mean the huge economic boom that generally follows recessions. Yet, for all of the projections of economists, pundits, and blogosphere heads, there is still a lot to learn and see happen with this chapter in world economic history.

Economist Mark Thorma laid out on his blog last week what he would like to see before he is convinced the economy is really headed back towards stability and high times:

First, though not necessarily foremost, that banks are being recapitalized with private sector funds, and that this is happening without the aid of government guarantees or other such programs that encourage capital infusions (which is hard to determine while the government programs are in place). Second, I will want to see private sector non-residential investment improving, another sign that private sector funds are moving back into circulation. Presently, this hasn’t even started heading back upward, though there are signs the decline is slowing…

And there are other important factors too, e.g. consumption rebounding (though not to pre-crisis debt sustained levels), stabilization in housing markets, and so on. The point is that a self-sustaining recovery will require that the private sector be the primary driver of new economic activity, and that is what I will be looking for.

Read his whole post here.