The Recovery Gains Strength
December 16th, 2011 by Rick DrainThe US economy is still far from robust, but it is definitely recovering.  This week brought more good news.
Despite all the liquidity that the Federal Reserve and other Central Banks have created, inflation remains tame.  If you’re a regular reader, you expected that. Inflation isn’t really caused by money supply, it’s caused by too much money chasing too few goods.  We (the banks, anyway) have the money, but we could make plenty more goods if only we had buyers.  No chasing means no inflation.  At least we can enjoy the freedom of action that the low inflation creates.
Employment growth has been positive but slow. The good news this week was that the Initial Unemployment Claim report was the lowest in years.
As fewer people lose their jobs, the new jobs being created have more net positive effect.
Going back to the bad debt crisis that started it all, improvements are even better.  We went three weeks without the FDIC having to close any more failed banks, and today they closed two but they were small (<$40M each).
This gives us the ingredients for a virtuous cycle: continued improvement in the economy means less stress on banks and fewer failures.  Healthier banks means that they’ll start lending more to support new home buyers and business expansion.
We have quite a ways to go, but we’re going the right way.
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