After three years of watching the U.S. economysputter along at stall speed, it seems long overdue to start revving up.
Don’t bet on it.
There’s been plenty of debate over the past few years: has the U.S. Federal Reserve been doing too much or not enough to revive the economy; did the $787 billion government stimulus package help, or was it a waste of money; is a double-dip recession in the wings; should we be worried about inflationor deflation ; is Washington killing the economy with regulation or is business simply gun shy; is tight lending because of a lack of demand, cautious banks, tougher regulations, or all of the above?
The answers almost don’t matter when the upshot is that the current recovery is poised to be long and painful. Any improvement will probably be tiny and incremental, just as it was when the economy was trying to emerge from the last major financial crisis back in 1929.
“The  financial crisis that came as a result of overleveraging has devastated the U.S. economy,” says Bernard Baumohl, chief global economist at the Economic Outlook Group. “Nothing that Washington is able to do is having any impact.”
In the economy’s favor this time around: regulators didn’t make the mistake of raising interest rates as they did back in the so-called Dirty Thirties, which deepened and prolonged the downturn.
“We were able to avoid a depression in 2009, but that’s about the best thing that can be said,” says Baumohl. “It could have gotten a heck of a lot worse were it not for economic policy. Now we’re muddling along in a growth recession . I think we have to write off 2012 as another year where we’re going to see very lackluster growth of less than 2 perecent.”
Back in the early 1980s when the U.S. experienced a similar severe hit to the economy and jobs, the Fed made dramatic cuts to interest rates to spur growth by making it cheaper to borrow money.
But with rates already at next to zero for more than two years, the Fed doesn’t have that firepower at its disposal.
For most Americans, there’s no distinction between a growth recession and a real recession.
With unemployment bouncing around 9 percent, the housing market in a big slump, and prices at the pump rising, there’s not much for American consumers and businesses to be optimistic about.
Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi UFJ, says all of the gloom is part of the problem.
“People are saying, 'Why hasn’t the economy done this and why hasn’t it done that?'” he says. “It has been one of the shakier recoveries in terms of business and consumer confidence. But we’ve been primed to look for bad things for four years. People don’t know how to look for good things. The whole world is being too negative. I think the pessimism will drop away, just like talk about a double dip dropped away.”
That’s the upbeat scenario.
The more pessimistic view expects several years of uninspiring growth, with a stall-speed economy that’s in danger of tipping into another recession.
Such anemic and slow growth is typical after financial panic morphs into a debt crisis, as it did during Latin America’s “lost decade” that began in the early 1980s and Scandinavia’s economic crisis in the 1990s.
“That’s where we are,” says Brian Gendreau, market strategist at Cetera Financial Group. “It fits the pattern. I hope I’m wrong and it’s just one or two more years and not several more.”