Short note: after spending much of my weekend digesting the horrific employment numbers, listening to a lot of Bloomberg podcasts and reading several of my favorite financial blogs I have come to the conclusion that it is time to bring out the 'D' word, as Robert Reich, former Secretary of Labor did on Keith Olbermann's show Friday night.
Why?
We've had 11 months of rising unemployment, there has been massive demand destruction in the price of oil and many critical commodities have fallen more in percentage terms in the last several months than they did in the first several months of the 'Great Depression.' Real unemployment, or U6, that measure of unemployment last used during the Carter Administration and before Republican legerdemain struck our economic reporting agencies, is now being reported by the media. The current U6 rate is 12.5%. So, more than 1 out of 10 Americans is out of work, or underemployed. It's going to continue to rise.
The credit markets are still massively disfunctional and banks aren't lending to small businesses, the real drivers of the economy. Many triple 'A' rated corporate bonds, belonging to companies with healthy balance sheets are trading at or near default levels. We're in a liquidity trap. State budgets are in utter disarray. Hard, nasty choices are going to have to be made, which will inevitably make things worse. GDP for the fourth quarter will probably fall off a cliff.
Detroit is awash in a sea of red-ink--even though Congress agreed to a $15 billion bailout. Consumers aren't spending at all. The price of real estate is still falling, a year and a half into the bargain. Manufacturing globally, including that in Germany and China has fallen off a cliff (so much for the de-coupling theory, or the silly idea that China had an internal market of its own to support a downfall in the US). No, the stock market hasn't fully priced in the collapse of our economy, but each bear market rally has gotten smaller and smaller, a clear sign if any that we're getting ready for another down leg in the markets. Oh yeah, George W. Bush finally used the 'R' word, recession, in a speech on Friday too.
Have I missed anything?
Actually, yes, any stimulus package is going to take time to ramp up. And I believe Washington is still in denial as to just how severe the situation is.
Sadly, there is no textbook definition of what a 'depression' is. But in my opinion, that's exactly what we are looking at: a depression, with very real deflation already happening. New York City has become a global black hole sucking in every last dollar available in the world and then destroying it--that's why the dollar has seen such short term strength, they are all being repatriated to pay off bad debt and/or hoard cash. We're faced with a long term 3-5 years at a minimum period of stalled or retrenching economic growth. The 'D' word has arrived.
rate
email
print
link to this page
Comments: 32
Keep your articles coming!
As long as the people at the top of the heap have control over the media etc. the 'D' word will be avoided and denied.
The bail out money is being used for everything else but what it was intended to be used for, I still feel like Paulsen and his cronies made darn sure their interests were secure before they turned off the flow of cash being dispensed to try and "fix" things. Meanwhile the small businesses and self employed are left twisting in the breeze!
I agree as far as the payment of politicians... they are responsible for making choices that affect a lot of us. Making ten or twenty times as much as I do is not a big thing... espeically in light of company execs who are paid upward of thousands times as much as I earn. I don't think they put out thousands of times the effort, or mential energy, or worth, or risk. It's just the way things are.
I think Robert forgot part of this sentence.
Coruption today is just hidden in such a way that we can't find it, or (usually) prove it. It's as much there now as it's always been: moreso if you ask me. If we beleive we've eliminated it just because we've caught a few of those who were clumsy, the most greedy, then we're kidding ourselves.
To be clearer as far as this last point is concerned I would say that "shrinking knowledge drives to shrinking markets" as my blog proves it.
However, 2009 and 2010 are different stories, even for my line of work.
The high school here has been studying the probable depression here for two years.
Featured in the Triple Name Club.
If the government would quit bailing out companies that are failing, and take the opportunity to invest in green industries, alternative energy, and fixing our crumbling infrastructure, we could get out of this depression quickly. Detroit is currently looking at spending 371 Million dollars to put in a mass transit system. That's .371 billion dollars to vastly improve the economic efficiency of one large city, as compared to 700 billion to bail out some failing banks who will probably keep the money we give them. Or, the 700 billion dollar bail out could finance over 1,800 such projects. These projects would create jobs. The people filling such jobs would have money to spend. The economy would be back up and running again. And, properly planned, the projects would help sustain the economy.
I’ll post three hundred articles, then I’ll post three hundred more...