By Nick Markola

We all know about the great recession of 2008 and early 2009. We all believe that the worst is behind us but questions remain such as will we see a V-shaped recovery. Will it be a U shaped one, or maybe a W-shaped? Recently I heard about yet another moniker for the recovery. A tub shaped one. While it is anyone’s guess what shape the recovery will be, it is clear to all that the much anticipated recovery is slow.

The finance gurus on Wall Street, just like the rest of the country, are hard at work looking for culprits to blame why the recovery is not more robust. As a no surprise to anyone, two suspects emerge as top culprits, BP and China among a sea of other ones.

                                   

The images of gushing crude oil from the live camera in the Gulf of Mexico are pretty painful to watch. BP initially reported that only up to 20,000 barrels of crude oil per day is spilling. Latest reports in claim that over 60,000 barrels of crude is spilling per day and BP is capturing a small portion of it. The company, after “friendly” chats with the White House agreed to set up a $20 billion fund to compensate those affected. For some reason, the mainstream media has not thoroughly reported this interesting fact but the $20 billion fund that BP agreed to fund vastly exceeds its legal obligation of $75 million under the US law. The company also agreed to pay $100 million to aid oil workers idled by President Obama’s moratorium on deepwater drilling. This makes for interesting economics. Politicians issue a moratorium on drilling, forcing many workers out of work then a private company has to compensate such workers. BP, after “friendly” White House chats suspended dividends for the next 3 quarters. The company has lost almost half of it’s market value or over $100 billion of wealth has been destructed.    The spill, as the largest environmental disaster in the US history, is having a devastating impact on the gulf and beyond. However, it is irresponsible to claim that it is one of the main reasons for the slow recovery in the US. For starters, the spill began on April 20, about 2 months ago and it is contained to a single geographic area. Slow pace of recovery is evident in many other geographic areas, such as Europe for example.

The next often mentioned culprit for the slow pace of economic recovery is China and their tight gripped, communist fist type control of their currency.  China’s Yuan (their currency) is pegged to the US dollar since the Olympics in 2008. The argument goes that if the Chinese revalue their currency and let it go up against the US dollar, that would help US manufacturers which in turn would jump start the US recovery. Some economists argue that Yuan’s peg to the dollar unfairly hurts our manufacturers and helps China’s exporters. US politicians have been vocal in demanding that the Chinese revalue their currency. And the story ends there. China is our biggest creditor and while being at their mercy, the US has no leverage to force them to revalue. This year US’s trade deficit with China has grown to $71 billion from $67 billion over the same period last year. While the Chinese may not want to directly hurt their largest borrower, the US, they also care about their largest export market, Europe. Europe, not the US is China’s largest export market and while the Euro is declining, their exports to Europe will face renewed completion which in return will result in a lesser incentive for the Chinese to revalue their currency and strengthen the Yuan. The lauder policy makers in Washington get, the harder it gets to sell the revaluation to China.

While trying to figure out the culprit for the slow economic recovery, our national debt is becoming gargantuan and still growing, thanks to bailouts, wars and ambitious social programs. Currently our debt is $13 trillion or 89% of the US gross domestic product (GDP) and it is likely to exceed the GDP in 2012 Barron’s reports. It may be wise to illustrate the magnitude of $1 trillion number. If one spent a million dollars a day since the day Jesus was born, it would not have reached a trillion by today.  The culprits for the slow economic recovery remain unknown; a powerful fact remains known and known well. Young readers of Dielli better start saving, and that means saving and investing as much as possible starting now because there will be other BP’s or Yuan’s on the horizon but social security may not be there when they retire. This doesn’t mean that not so young readers are off the hook. The hope is that by now, they have already saved a bundle because government social programs may or may not be there when needed.