The 'Virulent' Recovery
By Staff News & Analysis - July 02, 2010

Recent US mkt decline typical of a recovery: Alan Greenspan (left) … The recent US stock market decline is typical of a recovery, said the former Federal Reserve Chairman, Alan Greenspan in an exclusive interview to CNBC-TV18. After a weak start on disappointing economic data, US markets closed off its lows yesterday amid some short-covering … Terming the financial crisis as extraordinary and virulent, Greenspan said, "What we are looking at is an invisible wall, which we have run into here. This essentially is a typical pause that occurs in an economic recovery. I will grant you that this is not a normal economic recovery. We have just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen." He stated that the markets don't move with economy. "The stocks markets is not merely an indicator, it is a cause of economic recovery. It is not paper profits, but the capital gains themselves have very significant economic consequences. Stocks prices are leading indicators and that means that at turning points, by definition, they don't move with the rest of the economy." – MoneyControl

Dominant Social Theme: It's tough, but take it from the Maestro, things will get better.

Free-Market Analysis: This is a truly remarkable little story because it indicates the confusion that the mainstream media is facing when it comes to preparing and presenting dominant social themes. In the excerpt, above, we see a report that former Federal Reserve chairman Alan Greenspan believes the problems faced by the US economy are a "typical pause" on a way to a general recovery.

The report comes to us from Money Control, which is apparently a compendium of large financial outlets including Forbes, etc. But apparently there is another way of looking at Greenspan's recent comments. This perspective comes from Daily Finance, also a mainstream news compendium. The Daily Finance analysis chooses to focus its reporting on an entirely different interpretation of what Greenspan said, as follows:

Greenspan: This Is Not a Normal Recovery … Even Alan Greenspan admits that this is not a normal economic recovery, and traditionally immune small businesses are taking the brunt of the downturn. The former Federal Reserve Chairman, offering a wide-ranging interview on CNBC today, said the U.S. economy is leaning more heavily on large banks and wealthy individuals to drive the recovery.

Typically, the rebound starts with small businesses expanding and hiring more workers. "People don't want to hire because they're concerned they may have to let them go," said Greenspan, in his typical slow, professorial delivery, a sharp contrast to the hyped-up CNBC style. "Small business is in real, serious trouble." The Small Business Administration estimates that roughly half of Americans are employed by small businesses.

This week, Senate Democratic leaders introduced a much-delayed small business job bill. It calls for exclusion of small business capital gains, increasing SBA loan limits, establishing a small business lending fund and tax benefits. "Every day, headline after headline goes to big business layoffs and losses, but in reality it is the small businesses and their employees that are bearing the brunt of this crisis," said Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu (D-La.). "Since the start of the economic downturn, 80% of the country's job losses came from small businesses." (- Daily Finance)

So which interpretation is correct? The confusion likely stems from the muddle of the message itself. Greenspan has been on a kind of media tour of late, interpreting economic signals in a way that is generally soothing. At the same time, as any sane person can see, the indices that Greenspan likes to rely on are trending negative. This inserts a good deal of cognitive dissonance into Greenspan's narrative. He ends up presenting some profoundly negative data to tell an upbeat tale.

Let us examine his narrative in a little more detail. it begins with the perception that a recovery is underway – in America, anyway – a stock market recovery. (Are we in trouble already?) Such an equity rebound likely takes place as a result of renewed money-printing by central banks. The money finds its way into the stock market via money center banks. Much of the money at this point may go to the largest international companies because these are considered the "safest."

As the valuations of such multi-nationals begins to swell, and as stock markets keep rising, the media begins to declare a more general "recovery." Eventually, the equity inflation combined with expanding assets of multi-nationals drag some sort of recovery into place that finally has an impact on smaller companies and individuals' finances. The average consumer, seeing a "recovery" does not realize the damage that has taken place, however.

The average consumer, in fact, seeing the economy has stabilized and imbibing the media message that a "recovery" has taken place, believes that economic events have not only stabilized but have provided a base for even greater progress in the future. It seems to individuals trapped within this system, that capitalism undergoes tumultuous contractions but emerges with ever-more power and health.

Nothing could be further for the truth – though elite narrators like Greenspan won't mention this. Individuals may indeed be fooled by the dominant social theme that "recessions are necessary purges laying the groundwork for evermore powerful wealth-producing recoveries." In fact one can use a tidal metaphor to describe them. When the tide is going out, there are regular intervals when water seems to be advancing, but in fact the overall direction is one of contraction.

Over a period of decades, fiat-money works in a similar manner. Industrial economies are hollowed out by the combination of inflation and progressive taxation. Every recession, more small businesses are lost. Every recession, additional industry flees to safer havens. Because the process is gradual, and because the mainstream media refuses to recognize it, people living within the system may continue to believe the tide is coming in, when it is actually headed in the other direction.

Fiat money destructiveness is not always gradual however. The damage is cumulative. Eventually, there comes a tremendous crash that reveals the true nature of the system. People suddenly see how many jobs are gone, how much entrepreneurial energy has been diminished, how much of the beach has been denuded. When this happens, no amount of happy talk about a "service economy" or capitalism's "creative destruction" can compensate for the reality that has been revealed.

We would argue that these unusual events are very hard for those who run the current money system to explain. The usual fear-based promotions don't hold because the damage is so extensive and obvious. And this is what is going on today.

This is the reason that messages about the West's "recovery" sound so muddled and even why interviews with such economic eminences as Alan Greenspan appear confused. Stock markets have advanced as they should during a "recovery" – but now they are falling back again. The bottom line of multinationals has begun to swell, but not with the resonance and boisterousness of true animal spirits. Employment is not responding because the entire mechanism is still in shock, overwhelmed by calamity of fairly recent economic events.

Here at the Bell we are on the record for well over a year now that this "contraction" was actually a fiat money collapse and that the West's monetary system as we know it is over. It will indeed stagger along but it is in fact a "dead man walking." Something new will have to take its place and we hope that the new system will recognize gold and silver as money.

In the meantime, those who in our estimation are paid to be professional economic bellwethers – like Greenspan – are having a tough go of it. And so are those in the mainstream media who, for one reason or another, are trying to report on the current recovery as if it were "normal" (at least in the context of other such fiat recoveries). But it is not normal. There is nothing Greenspan can say to make it normal. No amount of writing on the subject will turn the current mess into anything resembling a recovery.

The crisis, which could have been over quickly, has now been turned into something nearly generational. The losses, which should have been taken by too-big-to-fail institutions have now been distributed to the general public. The rolling joblessness and hopelessness that have occurred as a result will continue for years and years. The economic distortions have NOT been unwound and as a result investors remains confused and economies uncertain.

After Thoughts

It is possible of course, that the elite that stands behind the current Western central banking economy and mainstream media complex can indeed re-stimulate enough to generate something that resembles a recovery. But that looks increasingly questionable. As a result, the messaging of chosen elite economists and academics who might be expected to provide the expected narrative remains muddled as well. There is confusion in ranks. We expect it to continue as a reflection of the larger "virulent" economic problems facing the West. Alan Greenspan, we think, will continue to have a hard time of it, as will those attempting to report on his comments, or larger monetary forces.