Newsweek - The recession is over! The Economist, Foreign Policy and Foreign Affars - Not so fast bucko!

The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over. Home sales, while still far below the levels of a year ago, have risen for three straight months—a first since 2004. The stock market has rallied 44 percent since March, thanks to renewed optimism and improving earnings from big companies like Goldman Sachs and Apple. In June, seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward, including manufacturing hours worked and unemployment claims. Macroeconomic Advisers, the St. Louis–based consulting firm, says the economy is expanding at a 2.5 percent annual rate in the current quarter. Economic activity "will increase slightly over the remainder of 2009," Federal Reserve chairman Ben Bernanke told Congress.

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All that may be true, but we exist in a globalized economy and it appears that the global economy is still verging on collapse - The Economist reports that global shipping is down some horrendous percentage:

Estimates by the World Trade Organization suggest that trade volumes will shrink by around a tenth this year. But recent figures from big economies give reasons to hope that the worst of the slump may now be past. Even in May, the value of trade was nearly a third lower than a year earlier. But the recent awful figures mask the fact that exports and imports have held more or less steady since January.

Foreign Affairs reports that the Asian economies are unlikely to recover soon, driven as they are by exports:

For decades, Asian economies used exports to the West as a means of growth. Now, if they hope to weather the global recession, they will have to enact deep structural changes such as higher wages and increased domestic consumption.

and Foreign Policy magazine predicts a coming bursting of the Chinese economic bubble:

China's fortunes over the past decade are reminiscent of Lucent Technologies in the 1990s. Lucent sold computer equipment to dot-coms. At first, its growth was natural, the result of selling goods to traditional, cash-generating companies. After opportunities with cash-generating customers dried out, it moved to start-ups -- and its growth became slightly artificial. These dot-coms were able to buy Lucent's equipment only by raising money through private equity and equity markets, since their business models didn't factor in the necessity of cash-flow generation.

Funds to buy Lucent's equipment quickly dried up, and its growth should have decelerated or declined. Instead, Lucent offered its own financing to dot-coms by borrowing and lending money on the cheap to finance the purchase of its own equipment. This worked well enough, until it came time to pay back the loans.

The United States, of course, isn't a dot-com. But a great portion of its growth came from borrowing Chinese money to buy Chinese goods, which means that Chinese growth was dependent on that very same borrowing.

Now the United States and the rest of the world is retrenching, corporations are slashing their spending, and consumers are closing their pocket books. This means that the consumption of Chinese goods is on the decline.

...

Much of China's growth over the past decade has come from lending to the United States. The country suffers from real overcapacity. And now growth comes from borrowing -- and hundreds of billion-dollar decisions made on the fly don't inspire a lot of confidence. For example, a nearly completed, 13-story building in Shanghai collapsed in June due to the poor quality of its construction.

This growth will result in a huge pile of bad debt -- as forced lending is bad lending. The list of negative consequences is very long, but the bottom line is simple: There is no miracle in the Chinese miracle growth, and China will pay a price. The only question is when and how much.

So we may have weathered the gust front but the rest of the storm is still to come.

Even Newsweek recognizes this, admitting that the recession may be over but the recovery is going to be long and painful:

To a large degree, the U.S. economy must now cope with an era of lower expectations. Road building isn't a recipe for full employment, green technology won't displace fossil fuels in this decade, the benefits of universal broadband may be overblown, and the dysfunctional health-care system won't shift overnight from a headwind to a tailwind. The recession may be over, but there's likely to be plenty of tough slogging ahead.

Does that mean the smart economy is a waste? Absolutely not. Declaring the stimulus a failure five months after its passage is a little like calling the results of a marathon at the second-mile marker. Virtually all these investments are necessary. They will make the economy and specific industries smarter. They are intelligent economic and political strategies. But they're not sufficient. Large as it is, the stimulus can't fill the hole we've created or bring a series of large industries into the 21st century. Each imperative requires investments far in advance of what even the most free-spending liberal could imagine. Transforming the nation's energy--production-and-transmission system "will take an investment of trillions of dollars over decades," says Dan Arvizu, director of the National Renewable Energy Laboratory in Golden, Colo. "The private sector has to make this happen."

Historically, the economy has kicked into higher gear when a development comes along that can touch every part of the economy, not just particular sectors: the steam engine, electricity, the computer chip, globalization, the Internet, cheap money. By definition, it's almost impossible to know what the next disruptive, discontinuous great leap forward is going to be. On several occasions, Lawrence Summers has remarked that when he was involved in the big economic summit Bill Clinton held after winning the 1992 election, he didn't recall hearing many mentions of the words "the Internet."

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