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Thursday, October 6. 2011
Few economists, and even fewer politicians, have dared utter the word 'Depression'. It's making a comeback, though. Are we in one? My guess is, no not yet. We've been close, and the economy isn't exactly moving in a direction that makes one think there's tremendous upside.
But we haven't been in anything more than a prolonged, deep recession.
Given the state of affairs surrounding debt, political inertia, crony capitalism, manufacturing, foreign exchange and unstable currency, it won't take much to force the U.S. into a much deeper downturn which would be labeled a Depression.
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For some reason, I tend to be on the negative side - especially with respect to economics (but then just before a crash I change my mind! :-) ). I don't think we are in a depression yet either, but there are so many things to worry about (there's that wall of worry we always hear about). For example large scale sovereign defaults in Europe, China crashes (how much longer can you build huge cities that remain empty?), At some point, people (or governments) are going to want more than 2% a year for ten years to lend the US money, and that doesn't count the political reasons for economic problems.
It doesn't look good.
I'm an eternal optimist. Being of a certain age, it's not like this hasn't happened, with the same kind of language being used to describe the situation, before.
Of course, there is a caveat in this - if the current Administration keeps on keepin' on with the insistence that we have to regulate and spend our way out of this, we're well and truly screwed.
Besides, what is the true difference between a extended recession and a depression? Nothing.
I disagree with you there TF....recession, money is still worth something but you have less of it....Depression, barter is looking pretty good.
Regardless of whether we're in a depression/recession/down cycle or whatever else you want to call it, I remain optimistic.
When I was studying with Robert Heilbroner, he told the class a story about Joseph Schumpeter. Schumpeter was Heilbroner's professor during the Great Depression. He walked into class one day and said something to the effect: "You are all concerned about the depression. Don't be. Depressions are like cold showers, you must take them from time to time, but you are refreshed afterward."
I've told friends that no matter how bad it gets, the United States is driven by initiative and unique risk taking. The current bad times are the result of unnecessary and excessive risk-taking, promoted by the government.
Once we get past this, we'll be fine and ready to grow again. In the meantime, it's good to focus on the future and prepare for it, but not be blind to the current conditions.
There are many politicians who would are happy trying to convince us things are 'better' when they aren't.
The joke, of course, is that a recession is when your neighbor loses his job. A depression is when you lose yours.
I've had my bout with unemployment already in this recession. There's no guarantee I won't experience another, though it's highly unlikely.
Generally, a true depression depends on several factors, although there is no completely accepted definition. One factor is the unavailability of credit. We don't have that problem at all right now, the banks have plenty of money to offer. They are just careful about who to lend to.
Another is unemployment. Typically it has to exceed 20% to be classified as a depression. If you follow Shadowstats, and I do, then it is a depression. But according to the accepted standard of measurement, it is not.
Finally, prices have to be considered. Hyperinflation or deflation have to be the order of the day. Regardless of which measure you follow, we don't have either right now.
We are very, very close on all of these counts, however.
I must be feeling very agreeable tonight. Yes, the current crisis is one of excessive leverage/risk taking, which starts with the folks that (in theory) control the money and the policies that spell out how it is used, or abused, as the case may be. I would like govt. to stop doing anything other than let it blow over. But instead they look like knuckleheads (bi partisan knuckleheadism) and persist in making it worse. Admit we are in a slump, man up , get over it.
I plan for the worst and hope for the best. In the early summer, the LA Times reported that unemployment in the LA basin was 24% and that in California overall it was 22%. The talking heads keep pushing recession or maybe a double dip recession, but that is not the case.
Shadow Stats lists the economic indicators as they were calculated prior to the late 1990's. Those indicators show that the US is in a depression.
That analysis is backed by my questions to people I meet while I am on the road. Depression.
We're saddled with a President who made a "bet" on Solyndra [his word, verbatim]. But that 'bet' was made with our tax money.
Obama has made other bets amounting to $trillions, and they failed. The money is gone, with very little to show for it. For a jamoke who has never held a real job in his life, his 'bets' using taxpayers' money are inexcusable.
If that inept clown gets re-elected, we are doomed.
The government is using this recession to extend its control over the private sector and our personal lives, like a python that squeezes constantly, tightening with every exhale.
The answer to your question is YES. Here are the numbers. We have been borrowing as a society more than we are producing since the early 1980s, without so much as even a one quarter pause. Unfortunately, the mathematics of this show that the interest owed on the debt compounds while the growth of production, using GDP as the measuring stick, only increases linearly. Thus, the gap between what we owe and what we generate to pay the debt expands each year. In 2008, the residential real estate showed the first crack in the unsustainable mathematical reality and housing asset prices began what will probably be at least a 15 year decline.
Now, here comes the really bad part. Not only is the debt to GDP ratio expanding, putting us on the road to an eventual debt death spiral, but even the measuring stick of GDP is seriously flawed. Since at least FY 2008 the Imperial Federal Government has taken upon itself the role of replacing private debt write-downs (a necessary process) with a ginormous inflation of public debt and money printing. The last quarter showed GDP growth of 1.3%. Since "government spending" is a net positive in GDP calculations, one must subtract the 40% of fiscal year federal expenditures which are debt financed. The result shows that the actual - minus counter-productive federal borrowing - GDP grew by a negative, yes negative, 10%. That, folks, is the very definition of a Depression (with a capital D).
For three years we have printed money in a futile attempt to get the private economy to take the baton back. But it can't, because the capacity and willingness for consumers to borrow more and consume more is exhausted. The only reason we have not recognized an economic Depression is because of utterly unsustainable government borrowing and spending of money it does not have and which it has no hope or intent to ever take in via taxes in the future. And how about the DC Repertory Theater show of "hot potato" when it comes to spending reductions? How much longer can this runaway train continue to roll down the tracks before the credit market signals a lack of confidence and starts jacking up interest rates a la the PIIGS? We're fried, man.
Well, the question is - are we in one?
Based on what you've written, you've said we're teetering on the edge and there have been quite a few band-aids used to cover a much larger gaping wound.
Still, the evidence indicates we haven't hit full-on "Depression" status yet. Sometimes the papering over just extends the the timeline before it becomes an actual Depression.
We are teetering. It won't take much to put us there.
BTW, if you didn't go back and read the post on the Mississippi Bubble and John Law, you might enjoy that.