The news is going from bad to worse. It’s interesting to me that those who are confined to the textbook-based, formula-toting, model-loving brand of economics can’t seem to see the forest through the trees. There is no recovery. Were it not for the largest peace-time deficit spending in history, we would clearly still be in recession. It’s quite ironic but when the media clues in to the fact that we’ll be back in recession by Q3 2011, they’ll proclaim it as a ‘double dip’. The truth is anything but.
As I’ve said all along, I am not a doom and gloom sort of person. But I’m also not interested in burying my head in the sand and ignoring the inevitable paradigm shifts that are taking place around us. We have an economy that operates on the very principles that landed one Bernard Madoff in federal prison. Perpetual debt expansion….the mirage of growth via ever-expanded debt-based currency! It can’t last. At least not at its present clip. Period.
The normalization of this process will be painful. I’m not unfeeling when it comes to the real world pain that is involved in the bursting of a credit bubble. But let’s understand what we’re dealing with. I’ve long maintained that the dynamics at work in this current economic downturn are unlike any we have seen in well over half a century. This is not the result of a business cycle gone amok, where excess inventory leads to idle factories and higher unemployment. It is not the result of inflation or geopolitical crises. It is the result of a materialistic, debt-loving population coming to its senses. It is the result of a bursting asset bubble that has ravaged the balance sheets of our largest trade partner and will soon ravage our own. It is a neo-depression.
I turn it over to Dave Rosenberg:
“Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away.
More fundamentally, in a recession, the economy is revived by government stimulus. In a depression, the economy is sustained by government stimulus. There is a very big difference between these two states.”
And so it is with that that we turn our gaze to the latest in the freak show that passes for economic journalism:
“Concerns are growing that the housing market recovery could stumble amid stubbornly high unemployment, a sluggish economy and faltering consumer confidence. U.S. home sales have collapsed since federal homebuyer tax credits expired in April.”
Ah yes….the old cart-before-the-horse trick. So it was the high unemployment, sluggish economy, and faltering consumer confidence that led to the first round of house declines in the US? Not the other way around? Boy was I wrong.
No doubt spurred on by that abysmal report, there are new calls for a new US stimulus package. You know….since the first one worked so well! Maybe this next one can orchestrate an economic bounce that lasts a whole 19 months before reality has to be dealt with!
“In the Great Depression, Franklin Roosevelt’s New Deal generated growth and reduced the unemployment rate from 25% in 1932 to less than 10% in 1937,” the group said. “However, the deficit hawks of that era persuaded President Roosevelt to reverse course prematurely and move toward budget balance. The result was a severe recession that caused the economy to contract sharply and sent the unemployment rate soaring. Only the much larger wartime spending of the early 1940s produced a full recovery.”
Yes, it was the ‘much larger wartime spending’ that produced a full US recovery. It was not the fact that the infrastructure and industry of every other industrialized nation were in smoldering ruins leaving the US the defacto industrial and export powerhouse. Where else could all of Europe purchase the necessary goods and machinery to rebuild. Come on! So unless stimulus 2.0 is accompanied by a carpet bombing mission over the manufacturing heartland of every competitor exporting nation, good luck with that!
And in what is no shock to anyone reading this blog, economic activity is (gasp!) slowing in Canada.
“The TD economists cite four major reasons for the dampened expectations — the weaker-than-expected U.S. recovery, the cooling Canadian housing market, tapped out consumers and the winding down of both government fiscal stimulus and the central bank’s monetary stimulus.”
Can’t argue with that!
But alas we also are hearing the call for more stimulus. Good thing old Jim and his ‘fiscal conservative’ buddies are at the helm.
“Calls for more government spending grow louder by the day on the fear of a slowing global economy and relatively high unemployment rate. If the Obama White House is contemplating more stimuli, NDP leader Jack Layton said Thursday, so should Ottawa. Meanwhile, Liberals say the Conservatives should keep the funds flowing past the March 31 deadline…”
Good thing steel-jawed Jim has a majority government and doesn’t need to worry about the opposition rhetoric. Oh wait…..
Stimulus 2.0! Canadian style, eh! Coming to a community near you in late 2011.
The insanity continues. Don’t be a part of it!