Nobody's borrowing, nobody's buying

There's a good article on MSNBC today about the dire state of the economy, written by John Schoen. The prognosis given is grim:

The economy is still growing, but just barely. The latest wave of downbeat economic data, including Friday’s report on gross domestic product, has renewed fears that we could be headed for the second half of a “double dip” recession.

It is even possible that the apparent economic recovery is a mirage, and that the recession that began in December 2007 never really ended.

Increasingly it seems that the unprecedented measures taken in 2008 and 2009 to revive the economy are not working because the recession is unlike any this country has seen in the past 60 years.

Our modern economy is underpinned by two activities -- borrowing and buying. Financial institutions make money off of the borrowing. Businesses make money off of the buying. Increasingly, the burden of borrowing and buying has fallen on the consumer. Consumer spending makes up the vast majority of the American economy, and, as the events of the past few years have shown us, it's pretty important that they borrow - and borrow prudently - as well.

Yet in both of these areas, the American economy is coming up short. On the consumption end, Mr. Schoen states the following:

There are other reasons to suggest that this recovery may not be like any since World War II because the causes of this recession were different — both in the nature and scope of the contraction. Other postwar recessions typically were characterized by drops in demand. In time, lower consumption created pent-up demand which brought higher levels of output, increased hiring and an upward cycle of growth.

The current recovery has been marked by an unusually weak pickup in demand. And the latest GDP data show that pickup is fading.

...

Consumer spending, which has typically led recessions to recovery, has been further dampened by the persistently high unemployment rate.

On the borrowing end, the Fed seems to be running into what is apparently called a "liquidity trap". This interesting and alarming conundrum is explained as follows:

"A liquidity trap it's basically when you try to push people to take more risks; you try to push banks to lend more; you try to push companies to to invest more and and they tell you no thank you," he [Mohamed El-Erian, 'CEO of PIMCO, the world's largest bond investor'] said. "So you're pushing on a string. Monetary policy can no longer force people to do things."

In other words, neither of the economy's two primary functions are operating as they should in order for a normal recovery to take hold.

Seriously, though, what did the business media really expect was going to happen? American consumers were falling increasingly into untenable debt during a decade when employment and average income barely moved. While federal relief packages have since removed some of the debt burden, far too much of it remains. Meanwhile, the employment situation has become markedly worse.

It's amazing how the media's portrayal of this recession has evolved. First is was the Second Great Depression. Then suddenly we were supposedly in a typical recovery phase. Now the mood is gloomy again. This erratic narrative only tentatively matches up with the actual state of the economy. But things are bad now. At least they have that right.