According to David Rosenberg writing in an article at ZeroHedge, the USA is not recovering at all from the recent recession but is actually in a depression.
The extract below, as a taster, has some rather interesting statistics which cannot really be spun as anything other than a mess even though green shoot spotters are more in evidence than yesterdays BBC bedbugs :
IT’S A DEPRESSION
This is what a depression is all about — an economy that 33 months after a recession begins, with zero policy rates, a stuffed central bank sheet, and a 10% deficit-to-GDP ratio, is still in need of government help for its sustenance. We had this nutty debate on Friday on Bloomberg Radio (Tom Keene is a class act, by the way) and another economist was on — the architect of the ECRI I think, who was claiming that there was no evidence of any indicator pointing to renewed economic contraction. And yet, that very day, the ECRI leading economic index comes in at a recessionary -10.1% print for last week. Go figure. The market for denial remains a lucrative one we would have to assume.
A depression usually involved a liquidity trap. In other words, expunging the debt excesses of the previous cycle leads to an ongoing contraction of credit where the demand and supply of loan-able funds is basically non-existent. This is why Libor (three-month interbank) rates are down to five-month lows of under 0.3%. [TD: and yet, one solitary bank in Europe still can not access this “perfectly functioning” market, instead paying the ECB 1.20% for 7 days worth of $60 million in dollar funding… some market]
Banks continue to sit with over $1 trillion of cash on their balance sheets and despite survey evidence suggesting a big thaw in once-tight lending guidelines, there is no indication that the Fed’s attempt to restart the credit engines is working. Companies are sitting on tons of cash themselves so they don’t need the money from the banks and households don’t seem ready or willing to take on major credit-sensitive spending commitments. Perhaps with one-quarter of Americans with a sub-650 FICO score, the typical U.S. bank loan officer doesn’t want to get fired for making the same mistake that got us into this mess in the last cycle and is actually requesting some documentation and proof of income (surely you jest).
Finally, you know it’s a depression when, 33 months after the onset of recession…
* Wages & salaries are still down 3.7% from the prior peak;
* Corporate profits are still down 20% from the peak;
* Real GDP is still down 1.3% from the peak;
* Industrial production is still down 7.2% from the peak;
* Employment is still down 5.5% from the peak;
* Retail sales are still down 4.5% from the peak;
* Manufacturing orders are still down 22.1% from the peak;
* Manufacturing shipments are still down 12.5% from the peak;
* Exports are still down 9.2% from the peak;
* Housing starts are still down 63.5% from the peak;
* New home sales are still down 68.9% from the peak;
* Existing home sales are still down 41.2% from the peak;
* Non-residential construction is still down 35.7% from the peak.Folks, in a normal recession-recovery cycle, practically all these indicators are making new highs at this juncture of the business cycle. For anyone to go on Bloomberg Radio and lay claim that this is a normal bounce-back in the economy is unarmed but very dangerous.
What is up, and up dramatically, since the recession began 33 months ago are government transfers to households (in the form of unemployment benefits, food stamps, welfare, social security) — they have ballooned 31% since the end of 2007. A record 30 cents of every dollar in personal income is now derived from some form of government support — now tell me that is not a depression-era statistic. The modern day soup line is a cheque in the mail.
In real terms, private sector wages are down 8.4% since the Great Recession began and are barely more than 1% higher now than they were at the cycle lows. Meanwhile, again in real terms, government-related income payments have surged 17%. Strip out Uncle Sam’s generosity, and real personal income is still 5.5% lower today than it was when the recession began in December 2007.
Maybe now we can get a better appreciation of why it is that the NBER has yet to sound the all-clear siren that the recession actually ever officially ended despite four quarters of positive GDP growth — perhaps not only because this may have merely been an unsustainable policy-induced spasm, but also because in per capita terms, real final sales continued to contract through this alleged statistical recovery
It will be interesting to see how the economy progresses towards the end of the year especially after the November US elections when the financial underpinnings will no doubt be scaled back after a suitable result has been obtained
Just the idea that we are in a statistical recovery leads one to believe that we are really in a “manipulated recovery”. David’s points are more than convincing. Lay them out against the expectations of a normal recovery and the results are starkly in contrast to what we are being fed daily by various agencies, institutes, councils and much of the media who only parrot reports by others.