Anglo-American Economies Contract Again
We’ve noted for years that the U.S. – and the entire globe – faces a another leg down.
Last week, we pointed out that Britain was in a triple dip, with its economy contracting .4 percent in the fourth quarter of 2012, and that the British economy is now worse than during the Great Depression.
Today, the U.S. confirmed that the economy contracted in the fourth quarter of 2012.
For those who are just waking up from their mainstream media-induced stupor, let’s take it from the top …
What Do Economic Indicators Say?
We’ve repeatedly pointed out that there are many indicators which show that the last 5 years have been worse than the Great Depression of the 1930s, including:
- The housing slump
- The level of inequality between rich and poor (too much inequality destroys economies)
- The interconnectedness of financial systems and economies worldwide (interconnectedness leads to financial instability)
- Runaway spending and greed
Mark McHugh reports:
Velocity of money is the frequency with which a unit of money is spent on new goods and services. It is a far better indicator of economic activity than GDP, consumer prices, the stock market, or sales of men’s underwear (which Greenspan was fond of ogling). In a healthy economy, the same dollar is collected as payment and subsequently spent many times over. In a depression, the velocity of money goes catatonic. Velocity of money is calculated by simply dividing GDP by a given money supply. This VoM chart using monetary base should end any discussion of what ”this” is and whether or not anybody should be using the word “recovery” with a straight face:
In just four short years, our “enlightened” policy-makers have slowed money velocity to depths never seen in the Great Depression.
(As we’ve previously explained, the Fed has intentionally squashed money multipliers and money velocity as a way to battle inflation. And see this)
Indeed, the number of Americans relying on government assistance to obtain basic food may be higher now that during the Great Depression. The only reason we don’t see “soup lines” like we did in the 30s is because of the massive food stamp program.
And while apologists for government and bank policy point to unemployment as being better than during the 1930s, even that claim is debatable.
What Do Economists Say?
Indeed, many economists agree that this could be worse than the Great Depression, including:
- Fed Chairman Ben Bernanke
- Former Fed Chairman Alan Greenspan (and see this and this)
- Former Fed Chairman Paul Volcker
- Economics scholar and former Federal Reserve Governor Frederic Mishkin
- The head of the Bank of England Mervyn King (and see this)
- Nobel prize winning economist Joseph Stiglitz
- Nobel prize winning economist Paul Krugman
- Former Goldman Sachs chairman John Whitehead
- Economics professors Barry Eichengreen and and Kevin H. O’Rourke (updated here)
- Investment advisor, risk expert and “Black Swan” author Nassim Nicholas Taleb
- Well-known PhD economist Marc Faber
- Morgan Stanley’s UK equity strategist Graham Secker
- Former chief credit officer at Fannie Mae Edward J. Pinto
- Billionaire investor George Soros
- Senior British minister Ed Balls
Bad Policy Has Us Stuck
We are stuck in a depression because the government has done all of the wrong things, and has failed to address the core problems.
Instead of bringing in new legs, we keep on recycling the same old re-treads who caused the problem in the first place.
For example:
- An economics professor says we’ll have “a never-ending depression unless we repudiate the debt, which never should have been extended in the first place”
- Fraud was one of the main causes of the Depression, but nothing has been done to rein in fraud today. Indeed, the only action the government is taking is to help cover up fraud
- All leading independent economists have said that the economy cannot recover until the big, insolvent banks are broken up, but the government has just helped them to get bigger
- The Federal Reserve caused the Great Depression and the current crisis, and has done nothing but help the fatcats at the expense of the little guy. And yet the government has given the Fed more power than ever.
- Government policies send manufacturing jobs and dollars abroad
- Quantitative easing isn’t helping … it’s only making things worse.
This isn’t an issue of left versus right … it’s corruption and bad policies which help the super-elite but are causing a depression for the vast majority of the people.
Category: Economy, Think Tank
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
“We’ve noted for years that the U.S. – and the entire globe – faces a another leg down.”
It is rather difficult to take a statement like this seriously. The world obviously faces both ups and downs and to predict either “for years” is simply the stopped-clock method of getting it correct.
Shame that this sort of writing is ending up on a normally high-quality site. Accusing people of being “government apologists” for not accepting the Shadow Stats unemployment numbers and claiming that we’re in a never-ending Depression because a number of economists were scared of a second Great Depression *in 2009* (seriously – check the dates on those links) is crack-pottery. The commentary is in line with a below-average Zero Hedge comment or a Financial Crisis book review on Amazon by an angry CRA-blamer. There is plenty to talk about regarding the Q4 GDP numbers (some good commentary exists elsewhere on The Big Picture).
The really sad thing is that the very basic premises – that the little guy often gets screwed; that government and other institutions are often blatantly or subtly corrupt; that inequality and bad policy and militarism are a dangerous mix – are sound. I get why the author was invited to post here. But the Washington’s Blog pieces dip too deeply into paranoia, misleading alarmism and worst of all plain old bad analysis, to add real value or stoke intelligent conversation.
Because the USA has been in a Structural Recession since March 2007, Real GDP is merely a function of the federal Deficit. At this time, Real GDP is a manipulated number where one need only add the effect of fiscal multipliers on the $1 trillion Deficit to today’s Structural GDP of -4.2% to estimate its status.
The USA faces a Catch-22: any attempt to re-balance the Budget will cause contractions, but to sustain the massive Deficits for another dozen years will induce a Greece-scale Treasuries yield (7%) crisis in 2027 and a potential IMF intervention the following year.
Real & Structural GDP outlook chart: http://trendlines.ca/free/economics/RecessionIndicatorUSA/USA-TRI.htm