You heard it here first. The recession is over!

While the official announcement must come from the National Bureau of Economics Research (NBER), many of the leading economic indicators are pointing to the end of the worst recession most Americans (nay, most humans) have experienced in their life.

There are at least 10 different leading indicators that economists use to predict the future direction of economic activity four to six months hence:

1. Stock Prices
2. Index of Consumer Expectations
3. Building Permits (housing starts)
4. Average weekly initial claims for unemployment insurance
5. Average weekly hours, manufacturing
6. Manufacturers’ new orders for consumer goods
7. Manufacturer’s new orders for nondefense capital goods
8. Interest Rate Spread between 10-year T-Bonds and the Fed Funds rate
9. Money Supply
10. Index of supplier deliveries

The past few months have seen a positive change in many (but not all) of these indicators. The two most elusive, and according to many experts, the most important, are employment and housing starts.

Many economists from both sides of the track, including me, believe that without positive job growth, the economy will not gain full steam. However, other indicators, specifically positive stock prices (S&P 500) suggest that the end has arrived.

The Great Recession has been a most painful experience for everyone; one that begs the question: how is the public interest defined during a major financial crisis?  Public interest is central to policy debates, economic theory, the tenets of democracy, and the very nature of a democratic government.

Although academia lacks a specific definition as to what constitutes the public interest, any such characterization would most likely emphasize the importance of the positive (or favorable) well-being or general welfare for all members of society.

Nevertheless, during times of extreme financial crises, economic and political policy-makers often receive criticism for placing the interests of private parties, such as banks and publicly traded corporations, ahead of public interests.

For example, between 1929 and 2009, the United States succumbed to three major financial crises, and at least fifteen different recessions lasting between eight and forty three months.  Put differently, over the past eighty years, the U.S. economy has been in a state of recession for fourteen of those years, or 17.5% of the time.

Given that the average life span in the U.S. is approximately eighty years, this also means that the average U.S. citizen lives approximately one-fifth of his or her life under the economic hardships typically associated with a recession, such as high unemployment, inflation, and uncertainty about the safety of the money and investments that they entrust to financial institutions, many of which fail during severe financial crises.

In response to each major financial crisis, the U.S. government implemented policies designed to utilize taxpayer’s money as a means of preventing businesses (typically banks and financial institutions) from failing.  Accordingly, advocates of governmental intervention (typically, those who embrace Keynesian economic philosophy) claim that the only way to stabilize an economy on the brink of collapse is to utilize taxpayers’ money to fund, or bailout, financial institutions.

By contrast, opponents of governmental intervention (otherwise known as Classical economists) believe that utilizing taxpayer’s money in order to bail out the private sector subordinates the public interest to that of the private interest.

Opponents argue that when the U.S. government utilizes taxpayer’s money as a means of bailing out failed businesses it not only contravenes the concepts of free markets (which would simply allow weakened businesses to fail), it also violates each citizen’s Constitutional rights; specifically, the due process and equitable protection clauses of the Fifth and Fourteenth Amendments.

Consequently, questions concerning how governmental intervention during severe financial crises affects the public interest warrant an investigation of the international and domestic pressures that influence the economic and political policies implemented by the U.S. government during such times.

While the debate between Classical and Keynesian economists continue, one thing is certain: if you are between 20 and 60 years old, you will succumb to at least one more economic recession during your lifetime. Given that the US budget deficit is at historical highs, you had better prepare for a wild and crazy ride!

In my next article, I will lay out specific steps that you must take in order to prepare yourself for the next recession. Whether it will go down in history as Great, or just another recession, you’ll want to be ready.

About the author

wrote 3 articles on this blog.

Stephen is the CEO of InvestAlytics, LLC, a firm providing investment-decision making tools and technology to investors and investment professionals seeking current income, growth, and trading opportunities. Previously, he worked as a Wall Street consultant and advisor for 15 years at A.G. Edwards, Merrill Lynch, and Charles Schwab. Stephen earned a bachelor's degree in Government from Harvard University, a master's degree in Government and International Political Economy from Harvard, and an advanced degree from the University of Oxford, England. He is a member of the CFA Institute, and oversees the investment management committee at the Harvard Club of Boston.

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