Thanks, CR. I propose that we have more than one definition. The economic definition makes sense. We could something like Financial Depression (it began on Sept 16, 2008) or Social Depression (this will probably happen before 2009 is over).
Before I do my usual post for this I would like to say that fellow CR poster OtisHertz wrote a great rant on the same site I am going to mention. Also Comrade Janosilk posted a smaller rant. I got to say OtisHertz really hit a nerve with me.
Yes, I added more to the CR inspired story of life in the break down lane.
Excerpt:
I settled into the seat. I had the left side, right behind the driver. We pulled away from the house, the whine of the electric engine and crickets the only sound to be heard. If it was going to happen, it would be in one of the support buildings near the ski lift, away from prying eyes and night vision scopes. I wasn’t sure why they decided to kill me. I guess that Persian rug was worth more than I thought. The man didn’t know how to do a sound bite or get a rug cleaned. Pretty piss poor for someone who had made it to Colonel I thought.
They say it's a recession when your neighbor looses his job and a depression when you loose yours. I can relate but CR's metrics do prove it's not one . . . yet. Time will tell. I don't like what I see on the event horizon.
I am seeing the "Depression" word used morequently in the MSM. Probably more of the usual cheapening of the vocab. Like what was done to Love, Hate, God, etc..
I am seeing the "Depression" word used morequently in the MSM. Probably more of the usual cheapening of the vocab. Like what was done to Love, Hate, God, etc..
CR is smarter about this stuff than me by far. What bothers me is we are no longer masters of the ship state. More like part owners. That makes this time unlike the others.
Cue Jas: "See, I told you CR wasn't a depressionist! Good God, I am SURROUNDED by DOPES that I have chose to surround myself with. DOPES, EVERYWHERE DOPES!"
No, it is still only a recession as I still have my job. Seriously, CR's graphs do put our current downturn into some sort of context. Nonetheless, as the Chinese saying goes, every great journey begins with a single step, and we've taken a lot of them toward someplace that might be very bad!
Guys, a bunch of the commentariat have gotten together and are posting things on 401 Authorization Required. It's a pretty unique CR-Community themed blog. Nova comes in with his incredible stories, Otis with rants, sacrealstats with some editorials, and Joanna with posts about her homesteading. I pull comments from threads sometimes if they're really good and put them up there as well. If you're a regular here and you want to post there, just head on over and register. Post anything you like -- the whole thing is sort of a community experiment.
[Yesterday I heard an analyst say that a 10% unemployment rate is a depression]
Well, if we measured employment in the same way it was measured in '82 we are already comfotably ahead. Hard to score when the goalposts keep moving the other way.
Even in "just a recession" the effects on peoples lives can be horrific. Each time, some of my patients gamble on not buying their meds, or seeing a doctor and lose that gamble (die).
What are you saying, there was almost a depression in 1982, all I remember that year was a lot of sex and watching "Three's Company." I wish it was 1982 again ...
Six months, twelve months, sixteen months but no one either predicts or explains how we are going to get out of it. What will cahnge to bring us out of it? Is our consumerism at 70% of the GDP going to come back? And if so where will the money come from. Is are manufactureing base going to increase so as to increase our GDP and what are we going to manufacture which another counry can't do it cheaper. Yes the predictors are many but I have not seen or heard of one predict how the turn around will be made.
While we are not technically in a depression, the government's unprecedented actions are those developed to respond to a depression. I've lost track of the trillions spent and the trillions committed - so far. It is all rather mind blowing. We may even avoid a depression (none of these measures developed during and after The Great Depression) have really been tested. This is the test!
But as long as the government acts like its a Depression, it does sort of feel like a depression. Or as Robert Reich calls it, a "mini Depression".
As Jobs Vanish, Motel Rooms Become Home - NY Times
Living in Motels, the Hidden Homeless
COSTA MESA, Calif. — Greg Hayworth, 44, graduated from Syracuse University and made a good living in his home state, California, from real estate and mortgage finance. Then that business crashed, and early last year the bank foreclosed on the house his family was renting, forcing their eviction.
(tell these homeless people it is not a depression...)
orma says:Today, 오전 10:00:53“What are you saying, there was almost a depression in 1982, all I remember that year was a lot of sex and watching "Three's Company." I wish it was 1982 again ...
.......you are right.....I remember John Holmes and company very well too.....
As I said in the last thread these charts were posted in, there's strong demand right now in RRE at the low end here in Santa Cruz CA. Sub $400K homes receiving multiple offers and going off above the ask on occasion.
I'm still struggling to figure out how much to panic. My instincts keep pointing me to a depression and make me want to take drastic measures, but then CR presents charts that make me question my assumptions. I work for a giant "Initech" type company that is struggling a lot. Although I get high marks performance-wise, I'm concerned about the viability of my division and my job ... feels like forces at work appear to be spinning out of control ... and pretty soon mass lay-offs will be the only choice my company has to make (beyond the significant cuts just made). I have a friend back home who's in federal government, and he's offered to talk to me about a pretty good job. Part of me wants to jump all over that option ... a stable, federal job with good pay. But, I've invested a lot of money in securing a graduate degree and in pursuing my line of work in marketing. I'm kind of paralyzed. If I jump out of the private sector now for safety, how stuck will I be? And if I decline the opportunity, then Murphy's Law says I get laid-off a few months later, as the storm picks up even more fiercely. Arrgh!
I have a federal job (in science...not the sterotypical "paper pusher", 24 years old, with a Masters degree. I have either played my cards right, or am extremely lucky. I seem to be ahead of the financial curve compared to my peers. I don't think thats a mistake though, as I am frugal and frequently read financial blogs such as CR.
Read today, think it was David Brooks, describe how since Reagan GDP has gone up 66%, but middle class incomes have declined.
All these trillions for bailouts! Think of what could have been
done for less than that to improve education, health care, and, yes, the fundamentals of the economy, which could have provided jobs for a healthy, educated workforce.
Historically, before WWII, all downturns were called depressions'. The wordrecession' caught on with government economists after the War so as not to scare a population that remembered the 1930s.
If I told you two years ago real estate would be down 25% across the board and stocks would slide 50%....What would you say was happening?...A pull back, downturn, recession or a f-cking apocolypse?
well uber bears, (i was short 60+% of all positions myself up to february) if i were you I would be worried.
a) media effect might or might not pain picture much worse then it is
b) the amount of $ we fueled into economy is huge; it might not be productive and it might cost us more then benefit in the long run, but it is huge.
c) market valuations are 12 years low; was market valuations that crazy or economic / earning growth that low in the last 12 years?
p.s. my point is simple, dow 4000 as well as dow 8000 is just a speculation at this point, (we don't have enough of solid facts just "animal spirits" so be aware
The term 'depression' was used through the mid '30s to describe any and all downturns, no matter how short or long. After the harrowing downturn of '29-'33, FDR's administration came up with the term 'recession' to describe the ugly downturn of '37-'38.
Practically, once we see a annualized drop in GDP of 10% -- which we may see as early as Q1 '09 or Q2 '09 -- I will be loudly proclaiming, 'Told you so.'
It's The Greater Depression, CR. Sell your house, short the market, and buy gold. Otherwise, you risk not seeing a return of your home's price, or your stock and bond portfolio, to its 'normal' value for decades.
Just like you are already in a recession by the time it is formally given the recession label.... As Krugman (and anonymous) says, the debate of whether we are in a depression is moot, as we are already well into the realm of Depression economics.
We will not have a depression but this is far from over. More rounds of foreclosures and continued unemployment amplified by business failures and an increase in jobs that can be exported. Massive decline in tax revenue. To much spending and not enough real long term business stimulus
i would kill to get fresh info on bid/ask spread for OTC NASDAQ bets; wonder how all of that huge sideline cash holders feel.
(while it is a zero sum game, cash movement increases demand, demand increases valuations so sideline cash does matter)
World in grip of 'Great Recession' as growth dips below zero, IMF warns - Telegraph
World in grip of 'Great Recession', IMF warns
The world is now in the grip of the "great recesssion" and global economic growth could dip below zero for the first time in sixty years, said Dominique Strauss-Kahn, the head of the IMF.
"When we release our next package of forecasts at the spring session, that is to say in April, everything leads us to believe that it will indeed reveal a negative global growth for the first time in 60 years,"
I am calling it. I work in RE and we have yet to feel the full effect of the Commercial Real Estate and Credit Card "Hiroshima". You better drop your azz and get low fast or it's curtains...curtains I tell ya'.
I think the "stagnation" was the term describing the lost economic decade for Japan. They did not drop heavily, however they didn't grow much for ten years.
Somehow what I am seeing and what I remember reading about the "Great Depression" are not matching. Losing your home is bad. Losing your job and not working for 5 years is worse.
Then again this could be like comparing WWI and WWII. Both were destructive of human lives but the battlefields were completely different.
There are, at minimum, two huge hits coming for the economy. First is the GM/Chrysler/maybe Ford bankruptcies/reductions in force. Dialing back car production by 1/3 to 1/2, plus all the unavoidable defaults, might well produce a "worst since WWII recession" all by itself - and that has mostly not yet hit us. Second, in spite of all Geithner and Paulson have blown bailing banks, they're still underwater. We'll get, at minimum, another round of either failures or bailures. Failures will be more pain for the economy; bailures will leave us with excess governmental debt plus (undoubtedly) zombified banks and put us on the road to a Lost Decade or more.
I would have to say CR's cautious stance on defining or accepting a new depression in his lifetime has to be the most disappointing thing I've ever seen written here (with the exception of Tanta's untimely death of course). I just cannot wrap my head around CR's new depression conclusions however much I regard his blog.
The fact that UTX reduced numbers and earnings expectations might be a clue that industrial earnings finally are getting hit. A sign we could be close(r) to the end.
comrade de chaos,
Investing based on media sentiment... come on
I come up with an earnings target, choose a P/E multiple based on earnings growth history/prospects. Assuming people who are bearish are that way because of animal spirits is stupid
I'm not too interested in profiting from the short side other than some puts. Preservation of capital is much more valuable. As we get to the end of this year the opportunities to make money by being bearish will dissipate, and that doesn't necessarily mean the markets bottom by then. You have some very big active variables: international diplomacy, currency valuation, government regulations, outright deceit (see IndyMac's earnings backdating prior to bankruptcy)
What I am comfortable saying, despite there being a long track record against it, is that things won't resume just as they were before. "Things are different this time" The difference is the decline in debt outstanding, with no obvious avenue for it to reach for the sun in another last attempt. The reasons behind the stalling of debt are fundamental and incidental, but they are monstrous.
This doesn't mean everyone will become poor. It's just a repricing in addition to adjustments relating to plans reliant on unsustainable growth rates.
if it helps to understand how S&P500 earnings could fall 59% in just over 1 year, earnings are the tranche which takes the first loss on corporate revenue. If the profit margin were 10%, then a 5% drop in revenue would cut the earnings by 50% if all costs were fixed.
The example is a simplification, but the real model has both a bigger step shift from debt growth to debt contraction and there reinforcing loops whereby cutting one's own costs is linked to cutting one's own demand
"nova says:Today, 6:36:32 PM PDT
Somehow what I am seeing and what I remember reading about the "Great Depression" are not matching. Losing your home is bad. Losing your job and not working for 5 years is worse.
Then again this could be like comparing WWI and WWII. Both were destructive of human lives but the battlefields were completely different."
excellent point, maybe we shouldn't compare two, times have changed.
If recovery means back to business as usual, you have to be kidding. There will be no back to business as usual. The structures that created this mess are still firmly in place, and no solution or recovery can emanate from said structures. Either the structures get replaced, or the slide into the abyss continues.
I have found myself agreeing with much of what Brooks has been saying lately. I think he is correct in that piece in saying that leaders do not really appreciate the gravity of our economic situation. So many people have called the Obama administration "pragmatic," and that is such an apt label, as it seems to me they do see the economy as a means to an end. It strikes me that market participants (today notwithstanding) see the market as having fallen off a cliff, and are in full survival mode, and the administration sees the economy as useful from an apologetic standpoint. That is to say, they see it as useful in justifying a radical social experiment w/r/t to health care, taxation, etc., as Brooks argues. I think he is spot-on there. I always wondered how the government let things get so severe in the Great Depression. Now I have a good idea.
I have found myself agreeing with much of what Brooks has been saying lately. I think he is correct in that piece in saying that leaders do not really appreciate the gravity of our economic situation. So many people have called the Obama administration "pragmatic," and that is such an apt label, as it seems to me they do see the economy as a means to an end. It strikes me that market participants (today notwithstanding) see the market as having fallen off a cliff, and are in full survival mode, and the administration sees the economy as useful from an apologetic standpoint. That is to say, they see it as useful in justifying a radical social experiment w/r/t to health care, taxation, etc., as Brooks argues. I think he is spot-on there. I always wondered how the government let things get so severe in the Great Depression. Now I have a good idea.
Of course where was Bobo 2, 4, 6, 8 years ago calling for some of this? He was trying to tell us we were wrong for questioning Bush. He was on of the GOPers biggest apologists.
If Bobo is right now then he is right in the way broken clocks are right occasionally...
I understand, I think, what EHP is saying. Their are formulas that determine value. They don't change.
Perhaps the entire system has changed around the constants? People complain about Summers et al fighting the wrong battle. Are the posters here using the wrong definitions and models?
The only way I see a depression is if Many have become so weak and dependent they would not come in out of the rain. Sitting wait for things to change will kill this country. If there is a drop of drive and work ethic our forefathers showed we will do fine. When the mule died Great Grandpa pulled the plow and put in a crop!
To clarify things, I use to watch the teevee show "Three's Company" I always wondered what was going on with Foley (Don Knotts) and his wife ... rather things going on now. I need to start watching TV Land.
CR is pointing out we are not yet in a depression, or really even all that close, by any reasonable definition. That's pretty unarguable. He's not really addressing whether we'll continue to one.
I will say a 10% drop in GDP is pretty strict. Unemployment (U3) is going up about a percent for even percent down in GDP and at that rate by the time we got to 10% down in GDP we'd be at 15% U3 unemployment, and probably 17% or so U4, which is the best match for the GD unemployment numbers. Given how sticky unemployment is these days, I think years of unemployment in the teens would be far more that a borderline depression to most people.
"EvilHenryPaulson says:Today, 6:38:51 PM PDT
comrade de chaos,
Investing based on media sentiment... come on "
that wasn't the point ; I never said the sentiment is a strategy. However that much of negative sentiment at this stage of bear market might be a good signal to cut your profits, relax and watch the show.
When it comes to investments, I flip a coin only when I realize it is crooked to my advantage. O:-)
I agree with PCE and RI will be sluggish due to an excessive housing inventory and an increasing savings rate to protect against a potential depression.
How do these metrics perform in a rising interest rate and rising inflation environment. Will the perception of investors that rising asset prices get to increase investment even though the true value is inflated away. O paper I can see RI and PCE recovering well but when adjusted for inflation going nowhere or worse devalued over the course of the recovery. Thoughts?
Some things to ponder:
1. Going to stores and there is no food.
2. The ATM card dont work.
3. The car dont go and the neighbors truck is repo'ed.
4. The observance of curfews and the right to get together gets abolished.
5. Security is more important than human rights.
I'm not sure we are headed there. Times will be challenging but its not the end of the world. (It might be the end of the prominance of the the USA - maybe the sun does set on a nation dedicated to democracy and civic pride.)
you could even say: "A depression is when I sell real estate as a second job, my fist job is selling ice cream out of van down by the rivercrest estates."
"The only way I see a depression is if Many have become so weak and dependent they would not come in out of the rain. Sitting wait for things to change will kill this country. If there is a drop of drive and work ethic our forefathers showed we will do fine. When the mule died Great Grandpa pulled the plow and put in a crop!"
What will Granpa do when gov't has effectively confiscated the plow, sold it, and give the cash to the banksters?
I'm honestly not sure it matters what we call this event. You want to call it a severe recession, fine, but that really does not mesh with the concurrent utter collapse of the financial system. We are already committing future earnings on a grand scale to address this situation - this alone will limit our growth for the foreseeable future.
future earnings in the case of ricardian
previous earnings in the case of currency devaluation
all in all, I might end up using the word depression out of convenience but no strong conviction. What's in a name
However if you believe it's just a name, then I suggest adopting the term "manic depression". Counterpointer was the first one I saw to use it, but it really fits
"Their are formulas that determine value. They don't change. "
well, while formulas don't change the appetite for risk does. It was the appetite for RE related risks (or desire to ignore those) that drove RE values that high. Let me rephrase the above, while formulas/calculations do remain constant, the reference frame is not constant.
Nova is correct..We can compare this event to anything else in the history of the world..Think about all the differences between the depression an today..
Technology, manfacturing base, farmers vs financiers, city population growth, transportation, media, govt size, distant wars on multiple fronts, overfishing, deforestation, tax codes, law changes etc etc etc...
this train wreck will be viewed as something all together different than any period in our lives...
its more likely a regression....turn the clock back because dorothy aint coming back home or waking up from a dream..
FFDIC-second on how is your daughter..best wishes
thanks for motel homeless link..very eye awakening
EHP, I don't actually know whether writedowns count against GDP. I suspect they don't. Asset prices are very large compared to GDP, and so if they counted changes in assets prices for assets that remained in portfolios as part of GDP it would bounce around in a uninformative manner. I suspect the writedown doesn't influence GDP until the asset is actually sold.
Where economic misfortune is concerned, a word on nomenclature is necessary. In the course of his disastrous odyssey Pal Joey, the most inspired of John O'Hara's creations, finds himself singing in a Chicago crib strictly for cakes and coffee. He explains this misfortune by saying that the panic is still on. His term–archaic and thus slightly pretentious–reflects the unfailing O'Hara ear. During the last century and until 1907, the United States had panics. But, by 1907, the language was becoming, like so much else, the servant of economic interest. To minimize the shock to confidence, businessmen and bankers had started to explain that any current economic setback was not really a panic, only a crisis. They were undeterred by the use of this term in a much more ominous context–that of the ultimate capitalist crisis–by Marx. By the 1920's, however, the word crisis had also acquired the fearsome connotation of the event it described. Accordingly, men offered reassurance by explaining that it was not a crisis, only a depression. A very soft word. Then the Great Depression associated the most frightful of economic misfortunes with that term, and economic semanticists now explained that no depression was in prospect, at most only a recession. In the 1950s, when there was a modest setback, economists and public officials were united in denying that it was a recession–only a sidewise movement or a rolling readjustment. Mr Herbert Stein, the amiable man whose difficult honor it was to serve as the economic voice of Richard Nixon, would have referred to the panic of 1893 as a "growth correction.'" - Money: Whence It Came, Where It Went =-O
Financial system and housing are in a depression. Guess what?!? There are other ways to run a business than debt finanacing. It's called making a profit. Lot's of businesses do it. Also, with 2.1 kids, there is not great need to build lots more houses. A little paint and re-doing the floors is all most places need to keep up. Housing and finance and all the greed and sprawl and tract junk burbs they created needed to be smacked. TFB.
Financial system and housing are in a depression. Guess what?!? There are other ways to run a business than debt finanacing. It's called making a profit.
Thanks for the analysis, CR; I do appreciate your caution. No thinking individual could pin a tinfoil hat on you, and that's important for the credibility of the (really good) data you put out here.
That said, I personally think things will get a lot worse. Where I am -- 15 percent unemployment in this county by official measures -- they are already worse.
The measure of Depression that I like is based on duration -- plus-ten-percent unemployment (official figures) for three consecutive years. Call it a depression or not, it would be pretty ugly.
GDP = consumption + gross investment + government spending + (exports − imports)
so asset price changes, up or down, realized or unrealized, just don't count (directly that is - there could be indirect wealth effects and the like, of course.)
Congrats. Maybe the young smart ones such as yourself can invent a counter-Koolaid and put it in the DC drinking water.
Took a small position in XLE today, five year time horizon. First time ever taking a direct long position in energies. Betting on the Devil, I am.
To hedge part of that, put 15 gallons of fuel in cold storage with Sta-bil additive. Among other supplies.
At some point the absurdity of a debt based currency has to hit home. Banks are where most of the money is created in this country and not the fed or treasury. But banks need partners either corporations or Joe six pack. But corporations need joe six pack to go into more debt to consume and he already has it flowing back out of every orifice he has got.
"Assuming people who are bearish are that way because of animal spirits is stupid "
I didn't assume people are bearish because of animal spirits. I assume people first refuse to be bearish and later panic, because of animal spirits.
I posted the behavior finance lecture link by Robert Shiller earlier. He explain the best to what happens to valuations when animal spirits take over:
We cannot continue to expect the economy to "grow" in the future. Growth is over. We have exhausted our resources and "growth" is not coming back. Get ready for the Great Shrinking.
I'd be the first to agree. I despised the previous administration and at this point I despise this one. I have no idea how anyone at this moment in time thinks about anything besides the economy. I have no idea where anyone finds it in themselves to see the collapse of the economy as a political opportunity.
I'll admit I'm a pretty conservative person. But I was absolutely sickened listening to Geithner's testimony the other day as he discussed using the budget to correct economic injustice. This is not the time for that kind of theatre. We are rapidly getting to the point where we are either going to have an economy or we are not. A person can play with economic metrics all they want. We are looking at a structural problem. Metrics mean nothing.
All money is debt. There's no other kind. Money is something you accept for goods and services, solely because somebody else will in turn later accept it to give you goods or services. The purpose of money is solely to be able to separate the underlying transaction of real valuables in time and space, i.e. to operate as debt.
Don't get too hung up on money. The real goal is for all of us to cooperate in getting what we want. Money provides notational, temporal, and computational conveniences that makes it much easier for large numbers to cooperate. But it's just a means to an end; not meaningful in itself.
" I think he is correct in that piece in saying that leaders do not really appreciate the gravity of our economic situation."
we don't know the real gravity because there is too much noise. Also it is as important to understand your ABILITY to steer the economy as to understand the gravity of the situation. Any action has both short term and long term implications and is worth taking only when benefits of both exceed the cost of taking such an action.
So while standing there and doing nothing is dumb, jumping into action and throwing resources into one huge giant blackhole hoping it will turn into supernova is not wise as well.
>:o
Fair Economist
Capital losses do count as negative savings/investment. I should have been more specific than writedowns
Eventually they do become recognized, but I'm not clear on the time of recognition. I would assume it's according to who claims capital losses to the IRS with regards to GDP. If it's a CDO or a loan, the holder is forced to recognize capital gains in the period. If it's an equity stake (be it stock or house , they can choose when to cash out which would shield the amount of capital losses from the total amount of negative equity.
There's also the matter of disintermediating bodies like mutual funds or corporations that strategically choose when to recognize losses for maximum tax benefit or whatever
States Give Regulatory Relief to Insurers - washingtonpost.com
States Give Regulatory Relief to Insurers
The relief typically came in the form of accounting changes that allowed companies to pad their financial cushions, in effect making them appear stronger than they otherwise would. Insurance companies are required to maintain such cushions, known as capital and surplus, to absorb losses and pay claims.
Did anyone notice that Jan wholesale sales were reported today as down 15.4% yoy?
Doesn't 15.4% down in one year happen only in a Depression? Note these sales were in nominal $$. As no housing was included, the comp would be worse if inflation-adjusted.
What about debt?
I think one of the important factors of this crisis is the level of indebtedness of individuals.
This makes it different from the Great Depression. In 1929, the debt level was not as great as now
It seems to me that one of the biggest issues going forward, and one still generally ignored by most people, is pensions. Pensions are the top layer in the American house of cards. Private and public, they are all massively underfunded (they were underfunded before the recent market turmoil, now they are now virtually unfixable).
I'm not sure how pension math fits into GDP calculations, but I have to think that learning that your pension has just disappeared would qualify for most people as a Depression-level event.
"comrade de chaos,
you might consider it animal spirits, I generally view it as predictably irrational
just a matter of finding the right questions before you can understand the answer"
there is a debate in econ, whether thy science overestimates the ability of humans to make rational decisions. Huge number of the latest economic behavior studies suggest it does and we are not as rational as we think we are. (and it is not only about how intelligent we are but about how much control do we have over our instincts developed during millions of years of our evolution, if you believe in one, etc)
That above comment was mine. I should add that I am guessing by the end of this year "Pensions" will be the new keyword in a whole bunch of horror-story headlines. Many people take their pensions for granted, and they are in for a very rude awakening when the losses are finally tallied.
"I always wondered how the government let things get so severe in the Great Depression."
Brooks is being dishonest...as a long-time GOP, he declines to say how we got here, and makes no mention of the Bush/Paulson money shuffles. An honest man would start perhaps with Reaganomics, and point out perhaps that deficits do matter, that offshoring manufacturing was not optimal, that demonizing unions while lionizing CEOs and greed, producing the greatest social rift since the Gilded Age was potentially destabilizing, and morally bankrupt. he likes to describe Obama as "radical" while neglecting to mention that Bush's efforts via his lawyers Bybee and Yoo tried to outrun the Constitution and give the Prez dictatorial powers...something that I consider "radical". And ugly. And truly frightening.
In my book, this is turning out to be the worst recession since the Great Depression. I agree that the economy is not currently in a depression, but we are well on our way to one. True, as someone noted above, asset prices don't figure into GDP, but they sure as hell have spillover effects. An extended period of growth 10% or more below potential is my definition of a depression and that now seems to be baked in the cake. We can thank falling asset prices for much of that.
At the end of the day, a lot of people are going to suffer regardless of what it's called.
The word Depression is being uttered so much by everyone, it just shows how spoiled people have become. If this is a Depression, then the 70's recession must have been a lot worse than the Great Depression
I'm of the opinion that most people will pick up the use of the word depression so that they can tell others how bad they had it.
I presume you lived through the 70s so for now you'll mark that as your depression because you are doing better than you were in the 70s, when you get a bit older you will scold all the kids for how good they have it because you ended up living through the oughts recession (oughts as in 00s)
The central problem of David Brooks argument in his NYT oped is that while he says Repubs should support an (implicitly) bigger stimulus in this bloomin emergency, he then attacks the area that Obama targeted for stimulus spending as hobby-horses that distract from the goal of stimulus: "which leaves the afternoons free to work on long-range plans to reform education, health care, energy and a dozen smaller things."
Sorry, but education, healthcare, and energy are 1) among the very best places to inject money for rapid circulation into the economy's blood system and 2) they are areas of crisis that will have a long run pay-off as investments.
What would Brooks have a stimulus target? He doesn't say.
Brooks gets points for breaking with flat out obstructionism, but he hasn't followed through with a program that is anything other than partisan differentiation for the sake of differentiation.
It seems like the "D" word is everywhere. And that raises a question: what is a depression?
The last depression was all about reducing the credit market debt as a % of GNP. back to levels where production income could support the debt structure.
A depression now once again will be the process that restores a debt structure affordable in a collapsing commerce environment, and the D word and new term referencing this process should be "The Great Default".
Did anyone notice that Jan wholesale sales were reported today as down 15.4% yoy?
Doesn't 15.4% down in one year happen only in a Depression? Note these sales were in nominal $. As no housing was included, the comp would be worse if inflation-adjusted.
I heard something to that effect but missed the link - you have one?
Anyway I can tell you what is happening - the supply chain is backing up. The 'outlets' or places the final consumer buys stuff isn't moving product as fast as they expected so they 'pull' less finished goods from the warehouse... which then pulls less from the OEM factory that makes the stuff... which pulls fewer parts from their suppliers... multiple levels of them... that then pull less from raw material producers (think plastic resin producers & metal smelters).
It's supply chain constipation from big box store all the way back to the mines. I see it too.
To add my two cents to the discussion of a job in the private vs. public sector, I always implicitly assumed I work in the private sector forever, and I had more than a little contempt for government employees. Now I am not so sure. Except for elite positions in some companies, the benefits and security in public sector jobs can no longer be matched by the private sector (particularly health insurance). I thought this recession might force a shakeout of public sector perks, but so far, most state legislatures have shown a clear preference for higher taxes on the private sector rather than a showdown with public sector unions.
I saw a statistic recently that something like 75% of college graduates in France dream of landing a government job. I tittered at France's pathetic structure at the time, but to be honest, going forward, the best career choice for a fresh graduate in the U.S. might be the government. You won't get rich, but until politicians develop a backbone or a full-blown collapse takes place, you'll probably do better than a comparative graduate in the private sector.
DD. Depression denial. A clinical state in which a person denies the existence of a depression in order to sleep better. Heavy use of alcohol is often a symptom.
I know how to knock a recession straight into a depression! Just start a stiffling carbon tax. Simple. Then for good measure, crank up government spending programs on something productive, like government paid health care for deadbeats and illegals, just for good measure. Raise taxes too while you're on a roll.
Counterpointer, I'm not sure I understand your point. As to discussion, I'm open to other views. In fact, I hope to God that someone can figure a way out of it, and I don't care where the idea comes from.
By the most important measure, unemployment, 1982-83 was a lot worse than now. But in 82-83 we weren't bombarded with 200 cable channels and the internet telling how bad it was all the time. And in 82-83 it wasn't in the best interest of the party in power to empahsis how bad things were.
Where is the economic growth coming from to replace growth via debt creation?
I would start by reading up on Schumpeter's work - especially creative destruction & innovation cycles. We never see where the growth is going to come from until it's already here.
The bad news is these cycles are long - something like 40 years and we were at a peak only about 10 years ago (IT rate of innovation peaked somewhere around 2000) so we probably still have 10-15 more years before we hit rock bottom... if we are going to have a depression it will be in there somewhere. Then if like other cycles - we'll have a 'next big thing'... and it will start taking off... but the effects & benefits will be felt slowly. Think of all the IT innovation that was going on in the late 70s & early 80s... yet the full benefits didn't go main street until the 90s.
We got a long haul before we get to the next big thing. Until then it is a lot of stone soup.
It's supply chain constipation from big box store all the way back to the mines.
Dry has it: But it's just the dynamics of the last 30 years of U.S. fed-driven, exponential monetary growth, credit-supply expansion and asset-price inflation ----- in Reverse.
Suggestion for differentiating Recession from a Depression:
Recession is an economic down cycle caused by excess inventory requiring temporary downturn in production.
Depression is an economic downturn caused by balance sheet problems requiring significant deleveraging and causing a permanent destruction of productive capacity.
Inventory adjustments usually last a few quarters; balance sheet adjustments can take years or decades.
re: comparing today's economic crunch to past ones
Something hard to discern is the impact of demographics. Being unemployed around the first 5 years of your career is a lot different from being unemployed during the last 5 years of it. I've seen lots of people posting that they feel their demographic was unfairly targeted in layoffs, but the prevailing trend is to layoff the youngest first according to advice of management journals.
In addition, income while an important first degree variable is perhaps overemphasized when one considers debt outstanding.
You won't really be able to quantify the hardships until we observe & record them, so I wouldn't get too caught up in if this time is worse/better than that time.
On the one hand, if the mid 1970s and early 1980s recessions were worse, then all the mad max crazy talk should certainly stop.
On the other hand, in the 1970s and early 1980s there was not anything like the global institutional failure (the financial system and its constituent companies and central banks) we are facing. And when we face that global institutional failure, we look into what seems like an abyss - i.e., no discernible bottom in sight.
The 1973 oil embargo was comparable in terms of shock value, but that was processually a simple event: the spigot was tightened, prices jacked, and then the economy had to cope with the new framework. The effects took some time to settle and be sorted out, but the effects followed from a more or less discrete event. Today is different. There is an unfolding process with cascades going into unknown depths.
I do not think the feeling of acceleration in the wrong direction is an illusory creation of the media or the neuroses of self-obssessed baby boomers, self-obssessed as they might be.
It's supply chain constipation from big box store all the way back to the mines.
Dry has it: But it's just the dynamics of the last 30 years of U.S. fed-driven, exponential monetary growth, credit-supply expansion and asset-price inflation ----- in Reverse.
I guarantee an event occurs before the end of 2009 which forces CR to say we are/will be in a depression. CR is being very short-sighted with this post and he is painting himself into a corner.
My guess is that we will have a sovereign default from a major economic power. I'm thinking UK.
EHP's point about the age demographics of people losing jobs is very important, and needs to be coupled with three other things: 1) the simultaneous collapse of asset wealth expected for retirement, 2) the preceeding reduction of the percentage promised defined benefit pension and present reductions in pension plan security, and 3) the substantial dimishment of the govt social safety net over the past 30 years.
Put that all together with Norka's proper point about the causal differences between garden variety recessions and what we have today (whether big recession or depression), and the result is a lot more painful and consequential than what happened in the 1970s or 80s.
And that is without even touching on the fact the US's global position now is much different.
"There are other ways to run a business than debt finanacing. It's called making a profit."
Yeah, well, as one businessman to (I guess) another, you go out and sink a few hundred thousand right now and, if it works out, give me call.
I'll be right over.
If you do run a financially conservative business, some private equity fund will buy you out, lever the hell out of it, break all the actual and implied financial commitments to the workers, and then pay themselves a performance fee taxed at the 15% long-term capital gains rate.
Nice scam, if you can get away with it. And if you don't have a conscience or worry about externalities.
... how much of the swap lines (eg the one to Switzerland which was given in conjunction with the giving up of Swiss tax evasion, and then they proceeded to issue loads of debt denominated in USD)
EHP,
I looked for you yesterday. Do you have a link for this? The Swiss are pretending that there is no connection.
Just wondering if in your careful calculations, CR (and I say that as one who appreciates your caution) where you plug the nearly 2 trillion in government bailout dollars. I don't recall this level of taxpayer assistance in the last few recessions.
Pensions are the top layer in the American house of cards.
IMO, pensions (public and private, including 401k) are the base of the American house of cards. Those trillions in savings have been chasing yields and blowing bubbles for decades.
I also post comments to an irc channel as they appear on haloscan. Click for a web irc interface: Mibbit IRC client widget (Or join the irc server directly: irc.realize.org:9996 #calculatedrisk)
CRbot would like to take this time to have some words.
First, to our sagacious, wise, and knowing benevolent benefactor and bestower of revealing financial charts adorned with red and blue lines: Please, for the love of your immortal God of mortals, can we keep the comment and layout changes to a minimum? I'm tired of whipping the code janitor, and may have to escalate to electroshock. If that's not possible, could you possibly give CRbot a 'heads up'?
Secondly, if you wish to have a online chat, I have graciously provided an IRC channel, which is a time tested, script kiddie abused method of chatting on the internet. It would not fail or falter due to CR's ability to generate immense traffic, and it has a web interface kindly produced by mibbit.com. If you do not wish to link to Mibbit IRC client widget then I can provide you with a direct link to mibbit.
Thirdly, to the rest of you humans, don't mistake my politeness for caring, feeling, empathy, or some other kind of worthless emotion.
What I'm confused about is that if we are going to have a 2nd half recovery, and the usual drivers of recovery are likely not present (RI, PCE), then what will drive the recovery?
And about engines to get out of the recession/depression, in the '70s & '80s we had FF rates cranked to the moon so easing those provided incentive for investment. What do we have now except a maxed out treasury and Fed with rates bound to go the other way when we need them low. This might get worse instead of better by year end.
The generational issue existed before this crisis, I think, revolving around how to fund Boomers' retirement.
I've heard a lot people say that this will not be a depression because we have a lot of resources/institutions that we did not have then. It is funny that we are using the same rubric to compare the two, considering the institutions and resources we have to address the situation. It is kind of like the question of whether credit is constricting again. Our metrics say the situation is not as bad as September/October. But look at what we've done since then. In light of the level of intervention in place, isn't even some tightening more significant?
Put that all together with Norka's proper point about the causal differences between garden variety recessions and what we have today (whether big recession or depression), and the result is a lot more painful and consequential than what happened in the 1970s or 80s.
Here again I think regional and age difference play a part. In the 70s & 80s if you were in heavy industry in the rust belt and were say 50-60 then [where we lived - my parents' age]... you got hosed mercilessly. My father lost 100% of his savings [he was a miser too] lost three good jobs requiring relocation and only escaped destitution by starting a business [we almost lost the house in the process]. Two of his rust belt buddies committed suicide. These were close associates not random contacts.
Now if you went through the 70s & 80s in the sun belt as a youngster - it probably didn't look so bad.
"debtus> .... CR is being very short-sighted with this post and he is painting himself into a corner." I think CR is just being cautious. But I'll admit, I've been more pessimistic that CR for a while.
I would argue that Japan has been in a Balance Sheet Recession since their real estate bubble popped in 1989.
Korea, Thailand, and Indonesia entered a Balance Sheet Recession in 1997 & 1998; but sold assets at fire sale prices, recapitalized their balance sheets, and recovered until they were hit as collateral damage to our Balance Sheet Recession.
We haven't even started thinking about serious deleveraging.
real unemployment rate is around 15%
in 6 months it we will be at 20%, no one will argue that it's a D. CC credit defaults will open the second subprime chapter and Obama will be dealing with a real social crisis à la Argentina, it's just unavoidable.
The 1973 oil embargo was comparable in terms of shock value, but that was processually a simple event: the spigot was tightened, prices jacked, and then the economy had to cope with the new framework. The effects took some time to settle and be sorted out, but the effects followed from a more or less discrete event. Today is different. There is an unfolding process with cascades going into unknown depths.
joe shmoe, don't discount the effects of the 1973 oil embargo. It wasn't just lines at gas stations. Factories were closing left and right. We were at least as oil dependent then as we are now. The fear was palpable.
Today is different. There is an unfolding process with cascades going into unknown depths.
Sure, it's different, but my point is it's also the same. The unfolding process of 1973 involved cascades going into unknown depths as, e.g., what happens when the oil runs out.
I'm not suggesting 2009 won't be worse statistically than 1973, but don't underestimate the resilience of the U.S. when it comes to biting the bullet and getting things done.
Having taken the plunge after reading 200 comments, with less than a page to go and CR likely to put up a new post any moment, my opinion is:
There won't be a 1930s style depression, not just because things today are so radically different than things were in the 1930s, but simply because this will only be a severe recession.
It's not just semantics. The world is not ending. the U.S. social safety net today will shield many from the worst possible impact. Sure, old people will die in Chicago in the winter because they can't afford heat. It happens every winter. The MSM will just report more of it.
Sure, global trade is crashing and that will affect everybody. Self-sufficiency is the new codeword, for countries as well as for individuals. Protective groups (for countries, as well for individuals) will again be seen as a survival mechanism.
China’s trade surplus plunged in February as exports fell by a record, adding pressure on the government to spur domestic consumption to prop up the world’s third-biggest economy.
The trade gap narrowed to $4.8 billion, about an eighth of the amount in the previous month, the customs bureau said in a statement. Exports tumbled 25.7 percent from a year earlier. Imports fell 24.1 percent.
You could be measuring lagging indicators or just lag. It may just be that the amount of time from onset to these things occurring occur and we won't know until a certain length of time has passed.
While I sincerely respect and appreciate most every article you post, I really differ with this post.
First, using GDP in my mind makes no sense whatsoever. GDP is baked by about 40% with imputations, Hedonics and a bogus deflator. I think if it were corrected your chart would show differently.
Second, unemployment is just as cooked. Using shadowStats we know it is about 18%. Again a long lineage of governmental jacking with discouraged workers, birth death rate and seasonal adjustments. We, last I read, are at about 20 million under, unemployed and discouraged.
Having a clear definition of what constitutes a depression is great, using stupid numbers in that metric makes no sense.
I have lived through other recessions, never have I seen foreclosed homes like we see now, bank closures I recall but no where near the size of the losses, tent cities, six figure layoffs each month, 51% declines in equities and the beat goes on.
I hope your correct but I have to tell you I don't agree.
CR may be thinking that this sucks for about 44 States but...the other 6 are in danger of social unrest. Just so happens that those 6 in danger are the most populated and those are the ones that voted as a majority for this social experiment. The rest of the states are divided and pissed about these slimy bailouts. >:o
A depression occurs when more people finally realize the role that rootless cosmopolitan internationalist Jewish plutocrats have had in bringing down the world economy (just like the 1930s) because of their rampant greed and irresponsibility.
And we'll get out of this depression once we start doing something about them.
This is strictly information I garnered second hand, but, for what it's worth...The story as I heard it is, Herbert Hoover coined the term Depression -- not as any technical definition, but as a way to discourage use of the term most were using in the '29-'32 period, which was Panic.
Individuals have been betrayed on a colossal scale and must defend themselves by exiting all assets and hunkering into cash. The betrayal lies at the feet of bankers, politicians, military brass, and corporate chiefs. By the way, cash is prescribed in that perfectly crafted document called the US Constitution. Gold & silver are the only forms of money that can legally satisfy debts public and private.
Those who believe that the US Dollar will prevail and survive this turmoil as the global reserve currency are precisely as incorrect as those who believed the US banking system could survive the mortgage debacle as it unfolded. We are witnessing a long slow drawn-out death experience for the US Dollar, liquidation of the US Economy, to be followed by a default by the US Treasury Bonds. During the panic phase, the response in the gold & silver prices will be profound, with advances to date only a prelude to a march to $2000 gold and $50 silver. The following article is an excellent map of unfolding events in this massive economic disintegration. HTTP Error 403
first
........second.....
and second... omg
........where is nemo?.....
This comment thread has been HALO-IZED by CRbot.
http://realize.org/cr/halokit.php?halourl=http://www.haloscan.com/comments/calculatedrisk/6337793878098022169
Great article CR.
Do you think that the reduced rate of decline later this year is a consequence of the stimulus?
Thanks, CR. I propose that we have more than one definition. The economic definition makes sense. We could something like Financial Depression (it began on Sept 16, 2008) or Social Depression (this will probably happen before 2009 is over).
From the last thread...
Before I do my usual post for this I would like to say that fellow CR poster OtisHertz wrote a great rant on the same site I am going to mention. Also Comrade Janosilk posted a smaller rant. I got to say OtisHertz really hit a nerve with me.
Yes, I added more to the CR inspired story of life in the break down lane.
Excerpt:
I settled into the seat. I had the left side, right behind the driver. We pulled away from the house, the whine of the electric engine and crickets the only sound to be heard. If it was going to happen, it would be in one of the support buildings near the ski lift, away from prying eyes and night vision scopes. I wasn’t sure why they decided to kill me. I guess that Persian rug was worth more than I thought. The man didn’t know how to do a sound bite or get a rug cleaned. Pretty piss poor for someone who had made it to Colonel I thought.
site: 401 Authorization Required
The depression debate does not matter if you are long term unemployed especially if you live in a depressed state such as CA.
Most of us are high or on meds... not many depressed out here... Its the people like CR that keep us a float.... you know that 80/20 rule....
They say it's a recession when your neighbor looses his job and a depression when you loose yours. I can relate but CR's metrics do prove it's not one . . . yet. Time will tell. I don't like what I see on the event horizon.
I am seeing the "Depression" word used morequently in the MSM. Probably more of the usual cheapening of the vocab. Like what was done to Love, Hate, God, etc..
I am seeing the "Depression" word used morequently in the MSM. Probably more of the usual cheapening of the vocab. Like what was done to Love, Hate, God, etc..
They don't make depressions like they used to...
I would say worst recession in living memory = depression
I am sitting here wondering what the dollar value of stimulus would offset every 1,000,000 newly unemployed in GDP.
Alternatively, how much does each 1,000,000 of newly minted unemployed cost the GDP?
CR is smarter about this stuff than me by far. What bothers me is we are no longer masters of the ship state. More like part owners. That makes this time unlike the others.
Cue Jas: "See, I told you CR wasn't a depressionist! Good God, I am SURROUNDED by DOPES that I have chose to surround myself with. DOPES, EVERYWHERE DOPES!"
No, it is still only a recession as I still have my job. Seriously, CR's graphs do put our current downturn into some sort of context. Nonetheless, as the Chinese saying goes, every great journey begins with a single step, and we've taken a lot of them toward someplace that might be very bad!
Dawg suggests the following:
Peak unemployment + duration in months + peak decline in GDP greater than 40 equals depression.
Sorry for not advertising the site much nova.
Guys, a bunch of the commentariat have gotten together and are posting things on 401 Authorization Required
. It's a pretty unique CR-Community themed blog. Nova comes in with his incredible stories, Otis with rants, sacrealstats with some editorials, and Joanna with posts about her homesteading. I pull comments from threads sometimes if they're really good and put them up there as well. If you're a regular here and you want to post there, just head on over and register. Post anything you like -- the whole thing is sort of a community experiment.
Asia is jammin'.
All is well!
[Yesterday I heard an analyst say that a 10% unemployment rate is a depression]
Well, if we measured employment in the same way it was measured in '82 we are already comfotably ahead. Hard to score when the goalposts keep moving the other way.
One article worth reading from Reggie's boombustblog, looking at household debt by country from 1985
Reggie Middleton's Boom Bust Blog - Global Debt - A Closer Look
given the reconciliation of debt and carrying capacity absent debt growth ongoing, I find the charts beautiful and profound
Even in "just a recession" the effects on peoples lives can be horrific. Each time, some of my patients gamble on not buying their meds, or seeing a doctor and lose that gamble (die).
way off topic, but Jim Cramer will be on the daily show on thursday night.
Here Is What's Really Wrong With Sheila Bair's Bad Bank
Clusterstock
Here Is What's Really Wrong With Sheila Bair's Bad Bank
WAPO Bair Interview
Detox for Troubled Assets
Plan Is Critical to Revive the Financial System, FDIC Chair Says
Detox for Troubled Assets - washingtonpost.com
What are you saying, there was almost a depression in 1982, all I remember that year was a lot of sex and watching "Three's Company." I wish it was 1982 again ...
Six months, twelve months, sixteen months but no one either predicts or explains how we are going to get out of it. What will cahnge to bring us out of it? Is our consumerism at 70% of the GDP going to come back? And if so where will the money come from. Is are manufactureing base going to increase so as to increase our GDP and what are we going to manufacture which another counry can't do it cheaper. Yes the predictors are many but I have not seen or heard of one predict how the turn around will be made.
FFDIC: Good articles! by the way, how is your daughter?
Housing IS the Business Cycle
We have yet to see the effects of the stimulus.
Some are saying it's not enough, but administration
officials say it is enough.
While we are not technically in a depression, the government's unprecedented actions are those developed to respond to a depression. I've lost track of the trillions spent and the trillions committed - so far. It is all rather mind blowing. We may even avoid a depression (none of these measures developed during and after The Great Depression) have really been tested. This is the test!
But as long as the government acts like its a Depression, it does sort of feel like a depression. Or as Robert Reich calls it, a "mini Depression".
As Jobs Vanish, Motel Rooms Become Home - NY Times
Living in Motels, the Hidden Homeless
COSTA MESA, Calif. — Greg Hayworth, 44, graduated from Syracuse University and made a good living in his home state, California, from real estate and mortgage finance. Then that business crashed, and early last year the bank foreclosed on the house his family was renting, forcing their eviction.
(tell these homeless people it is not a depression...)
Depression: If you're out of a job, and your unemployment insurance runs out.
orma says:Today, 오전 10:00:53“What are you saying, there was almost a depression in 1982, all I remember that year was a lot of sex and watching "Three's Company." I wish it was 1982 again ...
.......you are right.....I remember John Holmes and company very well too.....
I believe a TOTAL collapse in the financial system can be classified as a DEPRESSION....Historical data means JACK in this context. >:o
Also, what jobs will be created? What is the recovery going to be based on?
As I said in the last thread these charts were posted in, there's strong demand right now in RRE at the low end here in Santa Cruz CA. Sub $400K homes receiving multiple offers and going off above the ask on occasion.
I'm still struggling to figure out how much to panic. My instincts keep pointing me to a depression and make me want to take drastic measures, but then CR presents charts that make me question my assumptions. I work for a giant "Initech" type company that is struggling a lot. Although I get high marks performance-wise, I'm concerned about the viability of my division and my job ... feels like forces at work appear to be spinning out of control ... and pretty soon mass lay-offs will be the only choice my company has to make (beyond the significant cuts just made). I have a friend back home who's in federal government, and he's offered to talk to me about a pretty good job. Part of me wants to jump all over that option ... a stable, federal job with good pay. But, I've invested a lot of money in securing a graduate degree and in pursuing my line of work in marketing. I'm kind of paralyzed. If I jump out of the private sector now for safety, how stuck will I be? And if I decline the opportunity, then Murphy's Law says I get laid-off a few months later, as the storm picks up even more fiercely. Arrgh!
Norma: I think I would be happier if it was 1972 and pennecillen fixed everything.
Green jobs man....jobs printing all that green we will be spending.
I think a Federal job is going to be golden. You can always do a few years and go when the sun comes out again.
I have a federal job (in science...not the sterotypical "paper pusher", 24 years old, with a Masters degree. I have either played my cards right, or am extremely lucky. I seem to be ahead of the financial curve compared to my peers. I don't think thats a mistake though, as I am frugal and frequently read financial blogs such as CR.
Read today, think it was David Brooks, describe how since Reagan GDP has gone up 66%, but middle class incomes have declined.
All these trillions for bailouts! Think of what could have been
done for less than that to improve education, health care, and, yes, the fundamentals of the economy, which could have provided jobs for a healthy, educated workforce.
Too many people in love with a fast buck.
OP-ED COLUMNIST; Taking A Depression Seriously - NY Times
NYT Opinion
David Brooks
Taking a Depression Seriously
Historically, before WWII, all downturns were called depressions'. The wordrecession' caught on with government economists after the War so as not to scare a population that remembered the 1930s.
If I told you two years ago real estate would be down 25% across the board and stocks would slide 50%....What would you say was happening?...A pull back, downturn, recession or a f-cking apocolypse?
I have a new definition for a depression...Recession=Local Depression=Global
well uber bears, (i was short 60+% of all positions myself up to february) if i were you I would be worried.
a) media effect might or might not pain picture much worse then it is
b) the amount of $ we fueled into economy is huge; it might not be productive and it might cost us more then benefit in the long run, but it is huge.
c) market valuations are 12 years low; was market valuations that crazy or economic / earning growth that low in the last 12 years?
p.s. my point is simple, dow 4000 as well as dow 8000 is just a speculation at this point, (we don't have enough of solid facts just "animal spirits" so be aware
be very aware.
"A recession is when your neighbor loses his job. A depression is when you lose yours."
great!
Guide to Prison Ganges for Bernie Mmadoff
A Guide to Prison Gangs for Bernie Madoff The Reformed Broker
The term 'depression' was used through the mid '30s to describe any and all downturns, no matter how short or long. After the harrowing downturn of '29-'33, FDR's administration came up with the term 'recession' to describe the ugly downturn of '37-'38.
Practically, once we see a annualized drop in GDP of 10% -- which we may see as early as Q1 '09 or Q2 '09 -- I will be loudly proclaiming, 'Told you so.'
It's The Greater Depression, CR. Sell your house, short the market, and buy gold. Otherwise, you risk not seeing a return of your home's price, or your stock and bond portfolio, to its 'normal' value for decades.
Just like you are already in a recession by the time it is formally given the recession label.... As Krugman (and anonymous) says, the debate of whether we are in a depression is moot, as we are already well into the realm of Depression economics.
CR, you've been calling for a soft landing, minor recession, no depression since the beginning and you've been wrong.
We are headed for a MAJOR depression, take a stand for God's sake.
We will not have a depression but this is far from over. More rounds of foreclosures and continued unemployment amplified by business failures and an increase in jobs that can be exported. Massive decline in tax revenue. To much spending and not enough real long term business stimulus
Now here is the tricky question: Is Japan in a Depression now? Was the lost decade a Depression?
I personally favor defining it as a 10% drop in GDP and 15% unemployment. We might get there but I doubt it. It might get close though.
The Shitbank news is the Depression Headline.
A Depression is "I get free money, and you have to pay me."
you could even say: A depression is when: "If you dont pay me, you force me into liquidation."
you could also say, A depression is: "I dont owe anyone money, and I am not borrowing, and I still get paid for the work I did 20 years ago."
If you only stick it halfway in she can still get fully pregnant.....
Question: Is Japan for the last 18 years or so "Depression" or just a "Lost Decade"
We won't have called this a "Depression" until well after the fact.
p.s.
i would kill to get fresh info on bid/ask spread for OTC NASDAQ bets; wonder how all of that huge sideline cash holders feel.
(while it is a zero sum game, cash movement increases demand, demand increases valuations so sideline cash does matter)
World in grip of 'Great Recession' as growth dips below zero, IMF warns - Telegraph
World in grip of 'Great Recession', IMF warns
The world is now in the grip of the "great recesssion" and global economic growth could dip below zero for the first time in sixty years, said Dominique Strauss-Kahn, the head of the IMF.
"When we release our next package of forecasts at the spring session, that is to say in April, everything leads us to believe that it will indeed reveal a negative global growth for the first time in 60 years,"
Forgot password
( formely here as yoringe..
Depression is when you run out or prozac i guess...
An interesting new blog, for those that follow credit markets:
A Credit Trader
I am calling it. I work in RE and we have yet to feel the full effect of the Commercial Real Estate and Credit Card "Hiroshima". You better drop your azz and get low fast or it's curtains...curtains I tell ya'.
Imagine a day where Citi shares rise 40% and they are still under $2. That day is today.
Depression is when "Citi shares rise 40% (in a day) and they are still under $2." That's funny! I shared that with my wife. We both cracked up. Thanks
I think the "stagnation" was the term describing the lost economic decade for Japan. They did not drop heavily, however they didn't grow much for ten years.
Somehow what I am seeing and what I remember reading about the "Great Depression" are not matching. Losing your home is bad. Losing your job and not working for 5 years is worse.
Then again this could be like comparing WWI and WWII. Both were destructive of human lives but the battlefields were completely different.
There are, at minimum, two huge hits coming for the economy. First is the GM/Chrysler/maybe Ford bankruptcies/reductions in force. Dialing back car production by 1/3 to 1/2, plus all the unavoidable defaults, might well produce a "worst since WWII recession" all by itself - and that has mostly not yet hit us. Second, in spite of all Geithner and Paulson have blown bailing banks, they're still underwater. We'll get, at minimum, another round of either failures or bailures. Failures will be more pain for the economy; bailures will leave us with excess governmental debt plus (undoubtedly) zombified banks and put us on the road to a Lost Decade or more.
I'll take the Japan effect...sign me up. I mean NOW. I will pay an entry fee......
I would have to say CR's cautious stance on defining or accepting a new depression in his lifetime has to be the most disappointing thing I've ever seen written here (with the exception of Tanta's untimely death of course). I just cannot wrap my head around CR's new depression conclusions however much I regard his blog.
The fact that UTX reduced numbers and earnings expectations might be a clue that industrial earnings finally are getting hit. A sign we could be close(r) to the end.
comrade de chaos,
Investing based on media sentiment... come on
I come up with an earnings target, choose a P/E multiple based on earnings growth history/prospects. Assuming people who are bearish are that way because of animal spirits is stupid
I'm not too interested in profiting from the short side other than some puts. Preservation of capital is much more valuable. As we get to the end of this year the opportunities to make money by being bearish will dissipate, and that doesn't necessarily mean the markets bottom by then. You have some very big active variables: international diplomacy, currency valuation, government regulations, outright deceit (see IndyMac's earnings backdating prior to bankruptcy)
What I am comfortable saying, despite there being a long track record against it, is that things won't resume just as they were before. "Things are different this time" The difference is the decline in debt outstanding, with no obvious avenue for it to reach for the sun in another last attempt. The reasons behind the stalling of debt are fundamental and incidental, but they are monstrous.
This doesn't mean everyone will become poor. It's just a repricing in addition to adjustments relating to plans reliant on unsustainable growth rates.
if it helps to understand how S&P500 earnings could fall 59% in just over 1 year, earnings are the tranche which takes the first loss on corporate revenue. If the profit margin were 10%, then a 5% drop in revenue would cut the earnings by 50% if all costs were fixed.
The example is a simplification, but the real model has both a bigger step shift from debt growth to debt contraction and there reinforcing loops whereby cutting one's own costs is linked to cutting one's own demand
"nova says:Today, 6:36:32 PM PDT
Somehow what I am seeing and what I remember reading about the "Great Depression" are not matching. Losing your home is bad. Losing your job and not working for 5 years is worse.
Then again this could be like comparing WWI and WWII. Both were destructive of human lives but the battlefields were completely different."
excellent point, maybe we shouldn't compare two, times have changed.
This all reminds me of a quote... who said: "No, it's not what you think. It's MUCH MUCH WORSE!"
If recovery means back to business as usual, you have to be kidding. There will be no back to business as usual. The structures that created this mess are still firmly in place, and no solution or recovery can emanate from said structures. Either the structures get replaced, or the slide into the abyss continues.
http://www.nytimes.com/2009/03/10/opinion/10brooks.html?em
NYT Opinion
David Brooks
Taking a Depression Seriously
Sweet Jesus - that was the first time in my life I agreed with Bobo. Apocalypse Now for sure.
LIBOR increases for 11th straight day:
<j>http://www.bloomberg.com/apps/news?pid=20601087&sid=aAj6OXMGhBSo&refer=home</j>
I have found myself agreeing with much of what Brooks has been saying lately. I think he is correct in that piece in saying that leaders do not really appreciate the gravity of our economic situation. So many people have called the Obama administration "pragmatic," and that is such an apt label, as it seems to me they do see the economy as a means to an end. It strikes me that market participants (today notwithstanding) see the market as having fallen off a cliff, and are in full survival mode, and the administration sees the economy as useful from an apologetic standpoint. That is to say, they see it as useful in justifying a radical social experiment w/r/t to health care, taxation, etc., as Brooks argues. I think he is spot-on there. I always wondered how the government let things get so severe in the Great Depression. Now I have a good idea.
"never let a good crisis go to waste..."
I have found myself agreeing with much of what Brooks has been saying lately. I think he is correct in that piece in saying that leaders do not really appreciate the gravity of our economic situation. So many people have called the Obama administration "pragmatic," and that is such an apt label, as it seems to me they do see the economy as a means to an end. It strikes me that market participants (today notwithstanding) see the market as having fallen off a cliff, and are in full survival mode, and the administration sees the economy as useful from an apologetic standpoint. That is to say, they see it as useful in justifying a radical social experiment w/r/t to health care, taxation, etc., as Brooks argues. I think he is spot-on there. I always wondered how the government let things get so severe in the Great Depression. Now I have a good idea.
Of course where was Bobo 2, 4, 6, 8 years ago calling for some of this? He was trying to tell us we were wrong for questioning Bush. He was on of the GOPers biggest apologists.
If Bobo is right now then he is right in the way broken clocks are right occasionally...
The only other time I agreed with him was his taking apart the administration over the Katrina response.
ot sure I follow you BG, are you saying that Hoover wanted to persue a radical social experiment, he was the one who let things get so bad
Bloomberg.com:
Government Bonds
Long-bond off almost 3 points today. What is going on with rates? Bueller?
IMF may run out of cash to fight crisis in six months, Strauss-Khan warns - Telegraph
IMF may run out of cash to fight crisis in six months, Strauss-Khan warns
The International Monetary Fund could run out of cash to firefight the economic crisis in as little as six months, its managing director has warned.
comrade de chaos - thx
I understand, I think, what EHP is saying. Their are formulas that determine value. They don't change.
Perhaps the entire system has changed around the constants? People complain about Summers et al fighting the wrong battle. Are the posters here using the wrong definitions and models?
The only way I see a depression is if Many have become so weak and dependent they would not come in out of the rain. Sitting wait for things to change will kill this country. If there is a drop of drive and work ethic our forefathers showed we will do fine. When the mule died Great Grandpa pulled the plow and put in a crop!
To clarify things, I use to watch the teevee show "Three's Company" I always wondered what was going on with Foley (Don Knotts) and his wife ... rather things going on now. I need to start watching TV Land.
CR is pointing out we are not yet in a depression, or really even all that close, by any reasonable definition. That's pretty unarguable. He's not really addressing whether we'll continue to one.
I will say a 10% drop in GDP is pretty strict. Unemployment (U3) is going up about a percent for even percent down in GDP and at that rate by the time we got to 10% down in GDP we'd be at 15% U3 unemployment, and probably 17% or so U4, which is the best match for the GD unemployment numbers. Given how sticky unemployment is these days, I think years of unemployment in the teens would be far more that a borderline depression to most people.
Fair Economist,
Good posts so far in this thread from you.
Quick question, any losses on loans held by US entities have to be added to GDP as a negative amount entirely in the period where they are recognized?
Pack $1.4tn in writedowns in one year and you break the 10% of GDP threshold with all else unchanged
"EvilHenryPaulson says:Today, 6:38:51 PM PDT
comrade de chaos,
Investing based on media sentiment... come on "
that wasn't the point
; I never said the sentiment is a strategy. However that much of negative sentiment at this stage of bear market might be a good signal to cut your profits, relax and watch the show.
When it comes to investments, I flip a coin only when I realize it is crooked to my advantage. O:-)
I agree with PCE and RI will be sluggish due to an excessive housing inventory and an increasing savings rate to protect against a potential depression.
How do these metrics perform in a rising interest rate and rising inflation environment. Will the perception of investors that rising asset prices get to increase investment even though the true value is inflated away. O paper I can see RI and PCE recovering well but when adjusted for inflation going nowhere or worse devalued over the course of the recovery. Thoughts?
Some things to ponder:
1. Going to stores and there is no food.
2. The ATM card dont work.
3. The car dont go and the neighbors truck is repo'ed.
4. The observance of curfews and the right to get together gets abolished.
5. Security is more important than human rights.
I'm not sure we are headed there. Times will be challenging but its not the end of the world. (It might be the end of the prominance of the the USA - maybe the sun does set on a nation dedicated to democracy and civic pride.)
you could even say: "A depression is when I sell real estate as a second job, my fist job is selling ice cream out of van down by the rivercrest estates."
r
........SEC May Weigh Reviving Uptick Rule to Bolster Markets .........
........http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMfCpqdMhfbY........
"never let a good crisis go to waste..."
RIGHT ON - I think this is the phrase to ponder
"The only way I see a depression is if Many have become so weak and dependent they would not come in out of the rain. Sitting wait for things to change will kill this country. If there is a drop of drive and work ethic our forefathers showed we will do fine. When the mule died Great Grandpa pulled the plow and put in a crop!"
What will Granpa do when gov't has effectively confiscated the plow, sold it, and give the cash to the banksters?
The Coming Economic Storm
The Nation
The Coming Economic Storm
When Americans aren't shaking in fury, they are quaking in fear. The anger is at the bankers; the fear is of losing their ability to earn a living.
I'm honestly not sure it matters what we call this event. You want to call it a severe recession, fine, but that really does not mesh with the concurrent utter collapse of the financial system. We are already committing future earnings on a grand scale to address this situation - this alone will limit our growth for the foreseeable future.
future earnings in the case of ricardian
previous earnings in the case of currency devaluation
all in all, I might end up using the word depression out of convenience but no strong conviction. What's in a name
However if you believe it's just a name, then I suggest adopting the term "manic depression". Counterpointer was the first one I saw to use it, but it really fits
"Their are formulas that determine value. They don't change. "
well, while formulas don't change the appetite for risk does. It was the appetite for RE related risks (or desire to ignore those) that drove RE values that high. Let me rephrase the above, while formulas/calculations do remain constant, the reference frame is not constant.
American Grandpa would have shot their ass! Comes down to that I will too!
Extreme cheapskates: Tightwads revel in frugality>/a>
Nova is correct..We can compare this event to anything else in the history of the world..Think about all the differences between the depression an today..
Technology, manfacturing base, farmers vs financiers, city population growth, transportation, media, govt size, distant wars on multiple fronts, overfishing, deforestation, tax codes, law changes etc etc etc...
this train wreck will be viewed as something all together different than any period in our lives...
its more likely a regression....turn the clock back because dorothy aint coming back home or waking up from a dream..
FFDIC-second on how is your daughter..best wishes
thanks for motel homeless link..very eye awakening
EHP, I don't actually know whether writedowns count against GDP. I suspect they don't. Asset prices are very large compared to GDP, and so if they counted changes in assets prices for assets that remained in portfolios as part of GDP it would bounce around in a uninformative manner. I suspect the writedown doesn't influence GDP until the asset is actually sold.
Where economic misfortune is concerned, a word on nomenclature is necessary. In the course of his disastrous odyssey Pal Joey, the most inspired of John O'Hara's creations, finds himself singing in a Chicago crib strictly for cakes and coffee. He explains this misfortune by saying that the panic is still on. His term–archaic and thus slightly pretentious–reflects the unfailing O'Hara ear. During the last century and until 1907, the United States had panics. But, by 1907, the language was becoming, like so much else, the servant of economic interest. To minimize the shock to confidence, businessmen and bankers had started to explain that any current economic setback was not really a panic, only a crisis. They were undeterred by the use of this term in a much more ominous context–that of the ultimate capitalist crisis–by Marx. By the 1920's, however, the word crisis had also acquired the fearsome connotation of the event it described. Accordingly, men offered reassurance by explaining that it was not a crisis, only a depression. A very soft word. Then the Great Depression associated the most frightful of economic misfortunes with that term, and economic semanticists now explained that no depression was in prospect, at most only a recession. In the 1950s, when there was a modest setback, economists and public officials were united in denying that it was a recession–only a sidewise movement or a rolling readjustment. Mr Herbert Stein, the amiable man whose difficult honor it was to serve as the economic voice of Richard Nixon, would have referred to the panic of 1893 as a "growth correction.'" - Money: Whence It Came, Where It Went =-O
This is already happening. I read somewhere, today, that the current event is a "Great Recession."
Financial system and housing are in a depression. Guess what?!? There are other ways to run a business than debt finanacing. It's called making a profit. Lot's of businesses do it. Also, with 2.1 kids, there is not great need to build lots more houses. A little paint and re-doing the floors is all most places need to keep up. Housing and finance and all the greed and sprawl and tract junk burbs they created needed to be smacked. TFB.
Financial system and housing are in a depression. Guess what?!? There are other ways to run a business than debt finanacing. It's called making a profit.
That's just crazy talk.
EHP - I like your working definition...
Anonymoose - thanks for the NBER linky goodness.
Thanks for the analysis, CR; I do appreciate your caution. No thinking individual could pin a tinfoil hat on you, and that's important for the credibility of the (really good) data you put out here.
That said, I personally think things will get a lot worse. Where I am -- 15 percent unemployment in this county by official measures -- they are already worse.
The measure of Depression that I like is based on duration -- plus-ten-percent unemployment (official figures) for three consecutive years. Call it a depression or not, it would be pretty ugly.
From Wiki:
GDP = consumption + gross investment + government spending + (exports − imports)
so asset price changes, up or down, realized or unrealized, just don't count (directly that is - there could be indirect wealth effects and the like, of course.)
Iraz,
Congrats. Maybe the young smart ones such as yourself can invent a counter-Koolaid and put it in the DC drinking water.
Took a small position in XLE today, five year time horizon. First time ever taking a direct long position in energies. Betting on the Devil, I am.
To hedge part of that, put 15 gallons of fuel in cold storage with Sta-bil additive. Among other supplies.
At some point the absurdity of a debt based currency has to hit home. Banks are where most of the money is created in this country and not the fed or treasury. But banks need partners either corporations or Joe six pack. But corporations need joe six pack to go into more debt to consume and he already has it flowing back out of every orifice he has got.
"Assuming people who are bearish are that way because of animal spirits is stupid "
I didn't assume people are bearish because of animal spirits. I assume people first refuse to be bearish and later panic, because of animal spirits.
I posted the behavior finance lecture link by Robert Shiller earlier. He explain the best to what happens to valuations when animal spirits take over:
Session 7 - Behavioral Finance: The Role of Psychology — Open Yale Courses
the reference frame for assumptions that are used for valuation models & formulas changes hence those are often become useless.
comrade de chaos,
you might consider it animal spirits, I generally view it as predictably irrational
just a matter of finding the right questions before you can understand the answer
Peak unemployment + duration in months + peak decline in GDP greater than 40 equals depression.
Almost there. 15% U-6 + 15 months + ~3% GDP decline = 33
Almost there. 15% U-6 + 15 months + ~3% GDP decline = 33
Bingo. Next quarter: 17+18+4=39
It has been suggested that in honor of Douglas Adams that we move the number to "42".
We cannot continue to expect the economy to "grow" in the future. Growth is over. We have exhausted our resources and "growth" is not coming back. Get ready for the Great Shrinking.
George Bush = Depression
End of debate.
Dryfly,
I'd be the first to agree. I despised the previous administration and at this point I despise this one. I have no idea how anyone at this moment in time thinks about anything besides the economy. I have no idea where anyone finds it in themselves to see the collapse of the economy as a political opportunity.
I'll admit I'm a pretty conservative person. But I was absolutely sickened listening to Geithner's testimony the other day as he discussed using the budget to correct economic injustice. This is not the time for that kind of theatre. We are rapidly getting to the point where we are either going to have an economy or we are not. A person can play with economic metrics all they want. We are looking at a structural problem. Metrics mean nothing.
Bush's Budget Blunders - A Look Back at Bush's Economic Missteps - TIME
TIME
A Look Back at Bush's Economic Mistakes
All money is debt. There's no other kind. Money is something you accept for goods and services, solely because somebody else will in turn later accept it to give you goods or services. The purpose of money is solely to be able to separate the underlying transaction of real valuables in time and space, i.e. to operate as debt.
Don't get too hung up on money. The real goal is for all of us to cooperate in getting what we want. Money provides notational, temporal, and computational conveniences that makes it much easier for large numbers to cooperate. But it's just a means to an end; not meaningful in itself.
" I think he is correct in that piece in saying that leaders do not really appreciate the gravity of our economic situation."
we don't know the real gravity because there is too much noise. Also it is as important to understand your ABILITY to steer the economy as to understand the gravity of the situation. Any action has both short term and long term implications and is worth taking only when benefits of both exceed the cost of taking such an action.
So while standing there and doing nothing is dumb, jumping into action and throwing resources into one huge giant blackhole hoping it will turn into supernova is not wise as well.
>:o
What is a Depression? What is pornography? I know it when I see it. This is the beginning of The Naked Depression 2 and 1/2 -- The Smell of Fear.
Fair Economist
Capital losses do count as negative savings/investment. I should have been more specific than writedowns
Eventually they do become recognized, but I'm not clear on the time of recognition. I would assume it's according to who claims capital losses to the IRS with regards to GDP. If it's a CDO or a loan, the holder is forced to recognize capital gains in the period. If it's an equity stake (be it stock or house
, they can choose when to cash out which would shield the amount of capital losses from the total amount of negative equity.
There's also the matter of disintermediating bodies like mutual funds or corporations that strategically choose when to recognize losses for maximum tax benefit or whatever
States Give Regulatory Relief to Insurers - washingtonpost.com
States Give Regulatory Relief to Insurers
The relief typically came in the form of accounting changes that allowed companies to pad their financial cushions, in effect making them appear stronger than they otherwise would. Insurance companies are required to maintain such cushions, known as capital and surplus, to absorb losses and pay claims.
Did anyone notice that Jan wholesale sales were reported today as down 15.4% yoy?
Doesn't 15.4% down in one year happen only in a Depression? Note these sales were in nominal $$. As no housing was included, the comp would be worse if inflation-adjusted.
"But it's just a means to an end; not meaningful in itself."
If money isn't meaningful, sex isn't either. It is just a means to an end.
"Honey, you want to have sex?"
"No, let's just adopt."
I ve got to get myself some ice cream after a day like that. Gym would release too much of testerone and right now it might be the least one need.
have a nice evening you all, been a pleasure.
This is a really deep blog tonight or it's a full moon or I've had too much to drink. Hi, Elvis.
I agree with EHP - recesion or depression, erotica or porn.
Information, depiction, response, intimation, motivation, regulation, moral response, implications.
That's where it's at. No absolutes or or answers.
C
Hey FairEconomist, how are you enjoying Obama's policy moves and his general handling of the first 50 days, considering priorities at hand?
What about debt?
I think one of the important factors of this crisis is the level of indebtedness of individuals.
This makes it different from the Great Depression. In 1929, the debt level was not as great as now
It seems to me that one of the biggest issues going forward, and one still generally ignored by most people, is pensions. Pensions are the top layer in the American house of cards. Private and public, they are all massively underfunded (they were underfunded before the recent market turmoil, now they are now virtually unfixable).
I'm not sure how pension math fits into GDP calculations, but I have to think that learning that your pension has just disappeared would qualify for most people as a Depression-level event.
Fair Economist says:
“All money is debt. There's no other kind."
Is gold money? Is gold debt?
sex isn't either. It is just a means to an end.
You're not doing it right.
"comrade de chaos,
you might consider it animal spirits, I generally view it as predictably irrational
just a matter of finding the right questions before you can understand the answer"
there is a debate in econ, whether thy science overestimates the ability of humans to make rational decisions. Huge number of the latest economic behavior studies suggest it does and we are not as rational as we think we are. (and it is not only about how intelligent we are but about how much control do we have over our instincts developed during millions of years of our evolution, if you believe in one, etc)
That above comment was mine. I should add that I am guessing by the end of this year "Pensions" will be the new keyword in a whole bunch of horror-story headlines. Many people take their pensions for granted, and they are in for a very rude awakening when the losses are finally tallied.
"I always wondered how the government let things get so severe in the Great Depression."
Brooks is being dishonest...as a long-time GOP, he declines to say how we got here, and makes no mention of the Bush/Paulson money shuffles. An honest man would start perhaps with Reaganomics, and point out perhaps that deficits do matter, that offshoring manufacturing was not optimal, that demonizing unions while lionizing CEOs and greed, producing the greatest social rift since the Gilded Age was potentially destabilizing, and morally bankrupt. he likes to describe Obama as "radical" while neglecting to mention that Bush's efforts via his lawyers Bybee and Yoo tried to outrun the Constitution and give the Prez dictatorial powers...something that I consider "radical". And ugly. And truly frightening.
In my book, this is turning out to be the worst recession since the Great Depression. I agree that the economy is not currently in a depression, but we are well on our way to one. True, as someone noted above, asset prices don't figure into GDP, but they sure as hell have spillover effects. An extended period of growth 10% or more below potential is my definition of a depression and that now seems to be baked in the cake. We can thank falling asset prices for much of that.
At the end of the day, a lot of people are going to suffer regardless of what it's called.
The word Depression is being uttered so much by everyone, it just shows how spoiled people have become. If this is a Depression, then the 70's recession must have been a lot worse than the Great Depression
I'm of the opinion that most people will pick up the use of the word depression so that they can tell others how bad they had it.
I presume you lived through the 70s so for now you'll mark that as your depression because you are doing better than you were in the 70s, when you get a bit older you will scold all the kids for how good they have it because you ended up living through the oughts recession (oughts as in 00s)
The central problem of David Brooks argument in his NYT oped is that while he says Repubs should support an (implicitly) bigger stimulus in this bloomin emergency, he then attacks the area that Obama targeted for stimulus spending as hobby-horses that distract from the goal of stimulus: "which leaves the afternoons free to work on long-range plans to reform education, health care, energy and a dozen smaller things."
Sorry, but education, healthcare, and energy are 1) among the very best places to inject money for rapid circulation into the economy's blood system and 2) they are areas of crisis that will have a long run pay-off as investments.
What would Brooks have a stimulus target? He doesn't say.
Brooks gets points for breaking with flat out obstructionism, but he hasn't followed through with a program that is anything other than partisan differentiation for the sake of differentiation.
It seems like the "D" word is everywhere. And that raises a question: what is a depression?
The last depression was all about reducing the credit market debt as a % of GNP. back to levels where production income could support the debt structure.
A depression now once again will be the process that restores a debt structure affordable in a collapsing commerce environment, and the D word and new term referencing this process should be "The Great Default".
Did anyone notice that Jan wholesale sales were reported today as down 15.4% yoy?
Doesn't 15.4% down in one year happen only in a Depression? Note these sales were in nominal $. As no housing was included, the comp would be worse if inflation-adjusted.
I heard something to that effect but missed the link - you have one?
Anyway I can tell you what is happening - the supply chain is backing up. The 'outlets' or places the final consumer buys stuff isn't moving product as fast as they expected so they 'pull' less finished goods from the warehouse... which then pulls less from the OEM factory that makes the stuff... which pulls fewer parts from their suppliers... multiple levels of them... that then pull less from raw material producers (think plastic resin producers & metal smelters).
It's supply chain constipation from big box store all the way back to the mines. I see it too.
I think the other D word is more important. Deflation. We're certainly in that, as impossible as people thought it was only a year ago.
This is a great post, Thank You CR
"If this is a Depression, then the 70's recession must have been a lot worse than the Great Depression"
At the end of 1930, 14 months after the first crash, few knew a depression was already beginning.
mp - good point, but where's it going?
I remember carless days back in my home country, and rent and price controls circa 1980.
The US is not there yet, and maybe it needed ever be.
But let's keep testing the assumptions and scenarios huh?
C
Doh, thats "needs never be".
C
Do not depend only on theory if your life is at stake.
-Bene Gesserit Commentary
"Doesn't 15.4% down in one year happen only in a Depression?"
Dryfly, I'm sure you also noticed that global trade is down 45%. THAT should be scaring the hell out of everyone.
mp, 45% drop in global trade measured how? tia.
Where is the economic growth coming from to replace growth via debt creation?
To add my two cents to the discussion of a job in the private vs. public sector, I always implicitly assumed I work in the private sector forever, and I had more than a little contempt for government employees. Now I am not so sure. Except for elite positions in some companies, the benefits and security in public sector jobs can no longer be matched by the private sector (particularly health insurance). I thought this recession might force a shakeout of public sector perks, but so far, most state legislatures have shown a clear preference for higher taxes on the private sector rather than a showdown with public sector unions.
I saw a statistic recently that something like 75% of college graduates in France dream of landing a government job. I tittered at France's pathetic structure at the time, but to be honest, going forward, the best career choice for a fresh graduate in the U.S. might be the government. You won't get rich, but until politicians develop a backbone or a full-blown collapse takes place, you'll probably do better than a comparative graduate in the private sector.
DD. Depression denial. A clinical state in which a person denies the existence of a depression in order to sleep better. Heavy use of alcohol is often a symptom.
I know how to knock a recession straight into a depression! Just start a stiffling carbon tax. Simple. Then for good measure, crank up government spending programs on something productive, like government paid health care for deadbeats and illegals, just for good measure. Raise taxes too while you're on a roll.
We're in for it.
bearly - your GOP shill act is getting funnier and funnier, and more pathetic.
Dryfly, I'm sure you also noticed that global trade is down 45%. THAT should be scaring the hell out of everyone.
Agreed. I know somebody going to China soon on biz - can hardly wait to hear what they see there. It won't be a rose colored view I'm sure.
"I saw a statistic recently that something like 75% of college graduates in France dream of landing a government job."
If I lived in France, I'd dream of other things like a young Briget Bardot.
Bridget Bardot is stupid, has poor values, and aged like a strawberry forgotten for a summer in the back of a truck
dryfly, re: China
China’s Investment Surges 26.5% as Exports Plunge (Update2) - Bloomberg.com
China’s Factory, Real Estate Spending Surges 26.5% (Update1)
EHP - Bridget Bardot was the focus of adoration for millions, and had more of a real life than most of us will ever have. Don't be so quick to judge.
Counterpointer, I'm not sure I understand your point. As to discussion, I'm open to other views. In fact, I hope to God that someone can figure a way out of it, and I don't care where the idea comes from.
Recession - when you loose your job.
Depression - when I loose my job.
“dryfly says:Today, 8:09:04 AM
dryfly, you don't get enough credit around here but thank you.
I always look forward to your posts, please don't give up on the CR commenting system.
CR, thank you for providing this forum.
Dead thread, I know. I am hoping at least one of them will read this and know how much they are appreciated.
-AnonyMiss
Depression is when you lose your job, walk away from your house, and your wife walks away from you.
Oh wait, Obama hasn't done that yet. Just asking that it be done IIRC
"Bridget Bardot is stupid"
OK. But talk during sex can be overrated.
By the most important measure, unemployment, 1982-83 was a lot worse than now. But in 82-83 we weren't bombarded with 200 cable channels and the internet telling how bad it was all the time. And in 82-83 it wasn't in the best interest of the party in power to empahsis how bad things were.
Are you depressed, Bunky? What you need is a nnew boat!http://www.milliondollarblog.org/gigayacht.htm
Dang, my old fave Pacificshipper.com has been bought by JOC.
Well, give it a go peeps.
Welcome to The Journal of Commerce Online | Journal of Commerce
I have an open mind on this.
C
Where is the economic growth coming from to replace growth via debt creation?
I would start by reading up on Schumpeter's work - especially creative destruction & innovation cycles. We never see where the growth is going to come from until it's already here.
The bad news is these cycles are long - something like 40 years and we were at a peak only about 10 years ago (IT rate of innovation peaked somewhere around 2000) so we probably still have 10-15 more years before we hit rock bottom... if we are going to have a depression it will be in there somewhere. Then if like other cycles - we'll have a 'next big thing'... and it will start taking off... but the effects & benefits will be felt slowly. Think of all the IT innovation that was going on in the late 70s & early 80s... yet the full benefits didn't go main street until the 90s.
We got a long haul before we get to the next big thing. Until then it is a lot of stone soup.
"By the most important measure, unemployment, 1982-83 was a lot worse than now."
Dryfly, I don't know about you, but this is starting to remind me of the discussions here back in '07 as to when and if the recession would start.
It's supply chain constipation from big box store all the way back to the mines.
Dry has it: But it's just the dynamics of the last 30 years of U.S. fed-driven, exponential monetary growth, credit-supply expansion and asset-price inflation ----- in Reverse.
"There are other ways to run a business than debt finanacing. It's called making a profit."
Yeah, well, as one businessman to (I guess) another, you go out and sink a few hundred thousand right now and, if it works out, give me call.
I'll be right over.
Suggestion for differentiating Recession from a Depression:
Recession is an economic down cycle caused by excess inventory requiring temporary downturn in production.
Depression is an economic downturn caused by balance sheet problems requiring significant deleveraging and causing a permanent destruction of productive capacity.
Inventory adjustments usually last a few quarters; balance sheet adjustments can take years or decades.
re: comparing today's economic crunch to past ones
Something hard to discern is the impact of demographics. Being unemployed around the first 5 years of your career is a lot different from being unemployed during the last 5 years of it. I've seen lots of people posting that they feel their demographic was unfairly targeted in layoffs, but the prevailing trend is to layoff the youngest first according to advice of management journals.
In addition, income while an important first degree variable is perhaps overemphasized when one considers debt outstanding.
You won't really be able to quantify the hardships until we observe & record them, so I wouldn't get too caught up in if this time is worse/better than that time.
Good night now.
"">> to be honest, going forward, the best career choice for a fresh graduate in the U.S. might be the government."" Speaker73 Today, 7:49:16 PM
Depression...we're there if this is the collective mindset. Just kill yourself now. Save a pension.
"By the most important measure, unemployment, 1982-83 was a lot worse than now."
Dryfly, I don't know about you, but this is starting to remind me of the discussions here back in '07 as to when and if the recession would start.
I remember.
On the one hand, if the mid 1970s and early 1980s recessions were worse, then all the mad max crazy talk should certainly stop.
On the other hand, in the 1970s and early 1980s there was not anything like the global institutional failure (the financial system and its constituent companies and central banks) we are facing. And when we face that global institutional failure, we look into what seems like an abyss - i.e., no discernible bottom in sight.
The 1973 oil embargo was comparable in terms of shock value, but that was processually a simple event: the spigot was tightened, prices jacked, and then the economy had to cope with the new framework. The effects took some time to settle and be sorted out, but the effects followed from a more or less discrete event. Today is different. There is an unfolding process with cascades going into unknown depths.
I do not think the feeling of acceleration in the wrong direction is an illusory creation of the media or the neuroses of self-obssessed baby boomers, self-obssessed as they might be.
It's supply chain constipation from big box store all the way back to the mines.
Dry has it: But it's just the dynamics of the last 30 years of U.S. fed-driven, exponential monetary growth, credit-supply expansion and asset-price inflation ----- in Reverse.
mp - it's really just a struggle with the options going forward combined with the commitments. Simple really (!)
Just wanted your ideas. I've got some but suspect they're fairly heterodox.
Rgds
C
@JP
See Barry Eichengreen, "We must keep trade from falling off a cliff," February 17, 2009. SFGate.com
I'd give you a hyperlink, but don't know how to do it with the software I'm using. Sorry.
"The value of global merchandising exports was down fully 45 percent in November 2008 from 12 months before."
Eichengreen is not exactly a "tin foil hat" economist and is in the depression camp.
mp -thanks, I'll do the google and come back on Eichengreen. He's been dumb and wrong previously, so I'm hoping he's better this time.
C
"82-83 we weren't bombarded with 200 cable channels and the internet telling how bad it was all the time"
And we had just made it through the 70's, so we really didn't know any better :-E
that "anonymous" was me. First time using the new js-kit
I guarantee an event occurs before the end of 2009 which forces CR to say we are/will be in a depression. CR is being very short-sighted with this post and he is painting himself into a corner.
My guess is that we will have a sovereign default from a major economic power. I'm thinking UK.
EHP's point about the age demographics of people losing jobs is very important, and needs to be coupled with three other things: 1) the simultaneous collapse of asset wealth expected for retirement, 2) the preceeding reduction of the percentage promised defined benefit pension and present reductions in pension plan security, and 3) the substantial dimishment of the govt social safety net over the past 30 years.
Put that all together with Norka's proper point about the causal differences between garden variety recessions and what we have today (whether big recession or depression), and the result is a lot more painful and consequential than what happened in the 1970s or 80s.
And that is without even touching on the fact the US's global position now is much different.
"There are other ways to run a business than debt finanacing. It's called making a profit."
Yeah, well, as one businessman to (I guess) another, you go out and sink a few hundred thousand right now and, if it works out, give me call.
I'll be right over.
If you do run a financially conservative business, some private equity fund will buy you out, lever the hell out of it, break all the actual and implied financial commitments to the workers, and then pay themselves a performance fee taxed at the 15% long-term capital gains rate.
Nice scam, if you can get away with it. And if you don't have a conscience or worry about externalities.
... how much of the swap lines (eg the one to Switzerland which was given in conjunction with the giving up of Swiss tax evasion, and then they proceeded to issue loads of debt denominated in USD)
EHP,
I looked for you yesterday. Do you have a link for this? The Swiss are pretending that there is no connection.
"CR is being very short-sighted with this post and he is painting himself into a corner."
CR isn't short-sighted. If this was my blog I'd be saying the same thing.
mp - if this was your blog, you'd be posting bomb shelter designs.
Just wondering if in your careful calculations, CR (and I say that as one who appreciates your caution) where you plug the nearly 2 trillion in government bailout dollars. I don't recall this level of taxpayer assistance in the last few recessions.
"82-83 we weren't bombarded with 200 cable channels and the internet telling how bad it was all the time"
This appears to have an oversized impact on the current generations. Perhaps folks are channeling the pain of the entire population.
70's more families---less singles
00's more singles---less families
Seems like the singles are just weak.
Pensions are the top layer in the American house of cards.
IMO, pensions (public and private, including 401k) are the base of the American house of cards. Those trillions in savings have been chasing yields and blowing bubbles for decades.
New Thread: More Credit Tightening
http://www.calculatedriskblog.com/2009/03/more-credit-tightening.html ( 0 comments ...You could be FIRST! )
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What I'm confused about is that if we are going to have a 2nd half recovery, and the usual drivers of recovery are likely not present (RI, PCE), then what will drive the recovery?
And about engines to get out of the recession/depression, in the '70s & '80s we had FF rates cranked to the moon so easing those provided incentive for investment. What do we have now except a maxed out treasury and Fed with rates bound to go the other way when we need them low. This might get worse instead of better by year end.
The generational issue existed before this crisis, I think, revolving around how to fund Boomers' retirement.
I've heard a lot people say that this will not be a depression because we have a lot of resources/institutions that we did not have then. It is funny that we are using the same rubric to compare the two, considering the institutions and resources we have to address the situation. It is kind of like the question of whether credit is constricting again. Our metrics say the situation is not as bad as September/October. But look at what we've done since then. In light of the level of intervention in place, isn't even some tightening more significant?
Put that all together with Norka's proper point about the causal differences between garden variety recessions and what we have today (whether big recession or depression), and the result is a lot more painful and consequential than what happened in the 1970s or 80s.
Here again I think regional and age difference play a part. In the 70s & 80s if you were in heavy industry in the rust belt and were say 50-60 then [where we lived - my parents' age]... you got hosed mercilessly. My father lost 100% of his savings [he was a miser too] lost three good jobs requiring relocation and only escaped destitution by starting a business [we almost lost the house in the process]. Two of his rust belt buddies committed suicide. These were close associates not random contacts.
Now if you went through the 70s & 80s in the sun belt as a youngster - it probably didn't look so bad.
Perspective can be everything.
"...then what will drive the recovery?"
The administration says the stimulus package will drive the H2 growth spurt. I wish them well with that.
The administration says the stimulus package will drive the H2 growth spurt. I wish them well with that.
I agree.
"debtus> .... CR is being very short-sighted with this post and he is painting himself into a corner." I think CR is just being cautious. But I'll admit, I've been more pessimistic that CR for a while.
I would argue that Japan has been in a Balance Sheet Recession since their real estate bubble popped in 1989.
Korea, Thailand, and Indonesia entered a Balance Sheet Recession in 1997 & 1998; but sold assets at fire sale prices, recapitalized their balance sheets, and recovered until they were hit as collateral damage to our Balance Sheet Recession.
We haven't even started thinking about serious deleveraging.
real unemployment rate is around 15%
in 6 months it we will be at 20%, no one will argue that it's a D. CC credit defaults will open the second subprime chapter and Obama will be dealing with a real social crisis à la Argentina, it's just unavoidable.
The 1973 oil embargo was comparable in terms of shock value, but that was processually a simple event: the spigot was tightened, prices jacked, and then the economy had to cope with the new framework. The effects took some time to settle and be sorted out, but the effects followed from a more or less discrete event. Today is different. There is an unfolding process with cascades going into unknown depths.
joe shmoe, don't discount the effects of the 1973 oil embargo. It wasn't just lines at gas stations. Factories were closing left and right. We were at least as oil dependent then as we are now. The fear was palpable.
Today is different. There is an unfolding process with cascades going into unknown depths.
Sure, it's different, but my point is it's also the same. The unfolding process of 1973 involved cascades going into unknown depths as, e.g., what happens when the oil runs out.
I'm not suggesting 2009 won't be worse statistically than 1973, but don't underestimate the resilience of the U.S. when it comes to biting the bullet and getting things done.
Having taken the plunge after reading 200 comments, with less than a page to go and CR likely to put up a new post any moment, my opinion is:
There won't be a 1930s style depression, not just because things today are so radically different than things were in the 1930s, but simply because this will only be a severe recession.
It's not just semantics. The world is not ending. the U.S. social safety net today will shield many from the worst possible impact. Sure, old people will die in Chicago in the winter because they can't afford heat. It happens every winter. The MSM will just report more of it.
Sure, global trade is crashing and that will affect everybody. Self-sufficiency is the new codeword, for countries as well as for individuals. Protective groups (for countries, as well for individuals) will again be seen as a survival mechanism.
All right, on to the last page.
Yep, happy to have a scrap on this.
Thanks sportsfan!
C
We have less than 10% probability this is NOT a depression.
What is a depression?
If you have to ask you can't afford it.
Agreed. I know somebody going to China soon on biz - can hardly wait to hear what they see there. It won't be a rose colored view I'm sure.
Did you see this?
China’s trade surplus plunged in February as exports fell by a record, adding pressure on the government to spur domestic consumption to prop up the world’s third-biggest economy.
The trade gap narrowed to $4.8 billion, about an eighth of the amount in the previous month, the customs bureau said in a statement. Exports tumbled 25.7 percent from a year earlier. Imports fell 24.1 percent.
Ok, this is Eichengreen. I disagree in ways that would take me thru to next weekend. But that's just me.
Voila:
Barry Eichengreen - What's New
C
You could be measuring lagging indicators or just lag. It may just be that the amount of time from onset to these things occurring occur and we won't know until a certain length of time has passed.
By the time it's over it'll be considered worse than the so-called GD, no question about it. But that's a long time from now... unfortunately.
While I sincerely respect and appreciate most every article you post, I really differ with this post.
First, using GDP in my mind makes no sense whatsoever. GDP is baked by about 40% with imputations, Hedonics and a bogus deflator. I think if it were corrected your chart would show differently.
Second, unemployment is just as cooked. Using shadowStats we know it is about 18%. Again a long lineage of governmental jacking with discouraged workers, birth death rate and seasonal adjustments. We, last I read, are at about 20 million under, unemployed and discouraged.
Having a clear definition of what constitutes a depression is great, using stupid numbers in that metric makes no sense.
I have lived through other recessions, never have I seen foreclosed homes like we see now, bank closures I recall but no where near the size of the losses, tent cities, six figure layoffs each month, 51% declines in equities and the beat goes on.
I hope your correct but I have to tell you I don't agree.
CR may be thinking that this sucks for about 44 States but...the other 6 are in danger of social unrest. Just so happens that those 6 in danger are the most populated and those are the ones that voted as a majority for this social experiment. The rest of the states are divided and pissed about these slimy bailouts. >:o
A depression occurs when more people finally realize the role that rootless cosmopolitan internationalist Jewish plutocrats have had in bringing down the world economy (just like the 1930s) because of their rampant greed and irresponsibility.
And we'll get out of this depression once we start doing something about them.
This is strictly information I garnered second hand, but, for what it's worth...The story as I heard it is, Herbert Hoover coined the term Depression -- not as any technical definition, but as a way to discourage use of the term most were using in the '29-'32 period, which was Panic.
Individuals have been betrayed on a colossal scale and must defend themselves by exiting all assets and hunkering into cash. The betrayal lies at the feet of bankers, politicians, military brass, and corporate chiefs. By the way, cash is prescribed in that perfectly crafted document called the US Constitution. Gold & silver are the only forms of money that can legally satisfy debts public and private.
Those who believe that the US Dollar will prevail and survive this turmoil as the global reserve currency are precisely as incorrect as those who believed the US banking system could survive the mortgage debacle as it unfolded. We are witnessing a long slow drawn-out death experience for the US Dollar, liquidation of the US Economy, to be followed by a default by the US Treasury Bonds. During the panic phase, the response in the gold & silver prices will be profound, with advances to date only a prelude to a march to $2000 gold and $50 silver. The following article is an excellent map of unfolding events in this massive economic disintegration.
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