Are we in the third year of recession?

13 posts / 0 new
Last post
machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Are we in the third year of recession?

John Mauldin offers a rather appalling assessment of what's happened since April, from David Rosenberg:

Our suspicions have been confirmed - the recession never ended. Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows that the peak was in April, as we expected, with both May and June down 0.4% in the worst back-to-back performance since the economy was crying 'uncle' back in the depths of despair in September-October 2008.

The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the 'build in' for Q3 is -1.5% at an annual rate. Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter. Most economists have cut their forecasts but are still in a +2.5% to +3.5% range.

What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economic activity, as per the M.A. monthly data, is still 2.5% below the prior peak. To put this fact into context, the entire peak-to-trough contraction in the 2001 recession was 1.3%! That is incredible.

"Interestingly, and dovetailing nicely with our deflation theme, nominal GDP fell 0.3% in May and by 0.4% in June. This is a key reason why Treasury yields are melting."

http://www.safehaven.com/article/17913/how-we-get-through-this-mess

If the economic bounce started in June 2009 (as many suppose) and ended in April 2010, then it lasted only 10 months. There have been short recoveries in the past -- the one from July 1980 to July 1981 lasted only 12 months, in between double-dip recessions. But the failure of GDP to recover its previous high may be why the official recession arbiter, the NBER (National Bureau of Economic Research), still has not identified a trough (end point) for the recession which they date from Dec. 2007.

http://www.nber.org/cycles/cyclesmain.html

Here's an ugly graph from Mauldin's article, showing a peak in April, as well as the beginning of sustained growth without dips last June:

 

This explains a lot -- both the plunge in bond yields, and the Fed's 'QE 1.5' effort begun this month.

If we are in the third year of recession, it will be one of the longest ever. The postwar average was about 13 months; the monster from 1929 to 1933 lasted 43 months. Now we're at month 37 and counting. Are we broke yet?

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Are we in the third year of recession?

GD#2

Jager06's picture
Jager06
Status: Gold Member (Offline)
Joined: Dec 2 2009
Posts: 395
Re: Are we in the third year of recession?

The Greatest Depression.

TAE and ZH both have good stuff to say about the badness that is coming. Good in that it s precient, not that there might be a silver lining.

I have got to go get me some more canning jars. I remember my great grandmother telling me stories on the porch while she dipped snuff and smoked her pipe. I wish I could get some of those stories and lessons from her about GD #1 now.

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1148
Re: Are we in the third year of recession?

Lids, and a manure making critter that reproduces and is edible, might be able to milk it as well.

 

robie

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Are we in the third year of recession?

Courtesy of Jager06 in another thread titled 'Let's get it over with ...' -- an even uglier chart:

What's astounding about this index (red line) is that it leads not only GDP, but also the S&P itself (a supposed leading indicator).

Look out in September -- a seasonally weak month for stocks!

Travlin's picture
Travlin
Status: Diamond Member (Offline)
Joined: Apr 15 2010
Posts: 1322
Re: Are we in the third year of recession?

What recovery?  Did anyone here really believe we had one?  With the “official” unemployment rate close to 10% and the broad measure around 17%?  What we saw was some inventory rebuilding and the stimulus money filling some voids.  It was all smoke and mirrors.

I’m not as technically savvy as some of you guys, but here is my assessment.  We are in the early years of a disguised depression.  It took a while for people to catch on in the 1930s too.  American optimism (denial of reality) is hard to kill.

It is too late at night to dig up the supporting data, but what I have seen shows that without the bailouts, stimulus, and other measures, our GDP would have declined to about -10% last year, which is the standard definition of a depression.  Our “official” deficit this year is about 10% of GDP.  Subtract that alone and where are we?

To my amazement GDP includes all US government expenditures which account for about 25% of GDP if I remember correctly.  I don’t see how government redistribution of income is a "product".  It certainly is not the same as real production of wealth and value.

Throw in debt saturation and the stimulus measures no longer work.  Besides we doubled- down and shot our wad.  We’re broke and the American people are waking up to that fact.  More stimulus is a very hard sell these day.  I think we are in for many years of pain that will start getting more intense soon. 

This is my fast and dirty versoin.  Does anyone see it differently? 

Debt saturations graph  http://3.bp.blogspot.com/_pCDyiFUv9XU/S_HzX0bUJZI/AAAAAAAAJxA/UtOGAm5DPPI/s1600/Diminishing+Productivity+of+DEBT.jpg

yobob1's picture
yobob1
Status: Silver Member (Offline)
Joined: Apr 20 2009
Posts: 132
Re: Are we in the third year of recession?
machinehead wrote:

If we are in the third year of recession, it will be one of the longest ever. The postwar average was about 13 months; the monster from 1929 to 1933 lasted 43 months. Now we're at month 37 and counting. Are we broke yet?

 

I don't know of anyone that felt like the recession ended.  Hope may have increased briefly, but the hope was never converted to "better" other than in convoluted statistical circles..  Oodles of govt. money tossed in the shredder produced nothing but confetti and a few jobs to sweep it up.

I would find it difficult to argue strongly that the "recession" within the Great Depression ended in 1933.

Executive Order 6102 required U.S. citizens to deliver on or before May 1, 1933 all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of the order was punishable by fine up to $10,000 ($166,640 if adjusted for inflation as of 2008) or up to ten years in prison, or both. Most citizens who owned large amounts of gold had it transferred to countries such as Switzerland.[citation needed]  ....

 

......The price of gold from the treasury for international transactions was thereafter raised to $35 an ounce. The resulting profit that the government realized funded the Exchange Stabilization Fund established by the Gold Reserve Act in 1934.

http://en.wikipedia.org/wiki/Executive_Order_6102

When you devalue by 60+% lots of funny numbers get generated when you begin to report new economic data as the temptation for fallacious "adjustment" is just too great for any political power to resist..  Who knows how reliable any data is from that era - certainly no more than it is now.  There really is nothing new under the Sun, though each generation likes to believe that they invented sex and "financial innovation".  Too bad that FDR didn't raise the official gold price before calling it in - that certainly would have put more "money" in the hands of the people.  Another golden inflation opportunity missed. 

While there was some improvement in employment up to 1937, the rate of unemployment only briefly dipped below 17% before rising again in the years leading up to WW II.

By the by one of the favorite gold bugs' lore is the tale of what mining stocks did during the depression.  Well, duh - first in line at the "inflation trough" with a guaranteed buyer in unlimited quantity at a price nearly double for what you produce.  There was also a period where the govt was guaranteeing a silver price, though it lasted only a few years during the depression.  So there was a very logical reason why miners did well then.  There are no such guarantees now.

I would also thank you for leaving my fantasies about Ms. Funicello out of the discussion.  I have long since turned i my mouse millinery  for something more suitable.

 

yobob1's picture
yobob1
Status: Silver Member (Offline)
Joined: Apr 20 2009
Posts: 132
Re: Are we in the third year of recession?

Spot on.  IMO govt is not an add to GDP, but a deduction - an expense or cost of doing business since it is paid for out of "profit" of private production.

 

Travlin wrote:

What recovery?  Did anyone here really believe we had one?  With the “official” unemployment rate close to 10% and the broad measure around 17%?  What we saw was some inventory rebuilding and the stimulus money filling some voids.  It was all smoke and mirrors.

I’m not as technically savvy as some of you guys, but here is my assessment.  We are in the early years of a disguised depression.  It took a while for people to catch on in the 1930s too.  American optimism (denial of reality) is hard to kill.

It is too late at night to dig up the supporting data, but what I have seen shows that without the bailouts, stimulus, and other measures, our GDP would have declined to about -10% last year, which is the standard definition of a depression.  Our “official” deficit this year is about 10% of GDP.  Subtract that alone and where are we?

To my amazement GDP includes all US government expenditures which account for about 25% of GDP if I remember correctly.  I don’t see how government redistribution of income is a "product".  It certainly is not the same as real production of wealth and value.

Throw in debt saturation and the stimulus measures no longer work.  Besides we doubled- down and shot our wad.  We’re broke and the American people are waking up to that fact.  More stimulus is a very hard sell these day.  I think we are in for many years of pain that will start getting more intense soon. 

This is my fast and dirty versoin.  Does anyone see it differently? 

Debt saturations graph  http://3.bp.blogspot.com/_pCDyiFUv9XU/S_HzX0bUJZI/AAAAAAAAJxA/UtOGAm5DPPI/s1600/Diminishing+Productivity+of+DEBT.jpg

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Are we in the third year of recession?

Stimulus spending, as most government spending, adds no productivity to the economy (in 99.99% of the cases).  That is why it is a drain on economic acticity.  It imposes either a tax on current production in return for no increased productivity, or when it borrows from the future (no immediate tax consequence), it imposes future taxes on future production (again with no added productivity to show for it). 

The effect of stimulus is much like using a second credit card to pay the monthly fee on your first card.  For that one month, you have one extra cc payment in your bank account, and that could certainly make things easier for that one month.  Next month, you'll have increased debt to service and you'll either have to work harder or spend less on other things.  And the feel-good month was nothing but a debt-carried illusion that masked the reality of the situation.  It's that simple. 

When there is no demand for "working harder" - i.e., nothing you can spend your time on that someone else would pay you for, spending less becomes the only option.  When everyone does that, you get a major whammo recession or depression, until the debt has been paid off sufficiently to allow consumption to rise.  After consumption begins to rise, then maybe you'll begin to see an increase in investment for added productive capacity.  And we're a hell of a long ways off from that happenning.

 

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Are we in the third year of recession?
yobob1 wrote:

There really is nothing new under the Sun, though each generation likes to believe that they invented sex and "financial innovation". 

Killjoy! We really did invent rock 'n roll, though! Laughing

Here is a really unhappy camper:

WASHINGTON (MarketWatch) -- President Barack Obama should call for the resignation of both Treasury Secretary Timothy Geithner and Larry Summers, the head of the White House's national economic team, House Minority Leader John Boehner said Tuesday.

"President Obama should ask for -- and accept -- the resignations of the remaining members of his economic team, starting with Secretary Geithner and Larry Summers," Boehner (R., Ohio) said in an economic address to the City Club of Cleveland.

The comments came as Republicans prepare their economic line of attack ahead of mid-term elections for Congress.

http://www.marketwatch.com/story/boehner-geithner-and-summers-should-go-2010-08-24-91900

I cite this story not to side with one party or the other -- our current plight was very much a bipartisan achievement. But for the House minority leader to call for the Treasury Secretary's recommendation is highly unusual -- a major affront to the usual collegiality. 

Boehner's remarks are probably another leading indicator of renewed GDP weakness. He is likely getting grim feedback from his constituents in the district. If he expects deepening recession to be front-page news by November, then calling for Geithner and Summers to walk the plank is one way for his party to benefit from bad news.

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Are we in the third year of recession?
machinehead wrote:
yobob1 wrote:

There really is nothing new under the Sun, though each generation likes to believe that they invented sex and "financial innovation". 

Killjoy! We really did invent rock 'n roll, though! Laughing

Here is a really unhappy camper:

WASHINGTON (MarketWatch) -- President Barack Obama should call for the resignation of both Treasury Secretary Timothy Geithner and Larry Summers, the head of the White House's national economic team, House Minority Leader John Boehner said Tuesday.

"President Obama should ask for -- and accept -- the resignations of the remaining members of his economic team, starting with Secretary Geithner and Larry Summers," Boehner (R., Ohio) said in an economic address to the City Club of Cleveland.

The comments came as Republicans prepare their economic line of attack ahead of mid-term elections for Congress.

http://www.marketwatch.com/story/boehner-geithner-and-summers-should-go-2010-08-24-91900

I cite this story not to side with one party or the other -- our current plight was very much a bipartisan achievement. But for the House minority leader to call for the Treasury Secretary's resignation is highly unusual -- a major affront to the usual collegiality. 

Boehner's remarks are probably another leading indicator of renewed GDP weakness. He is likely getting grim feedback from his constituents in the district. If he expects deepening recession to be front-page news by November, then calling for Geithner and Summers to walk the plank is one way for his party to benefit from bad news.

gregroberts's picture
gregroberts
Status: Diamond Member (Offline)
Joined: Oct 6 2008
Posts: 1024
Where Greece is we will soon follow

"No Way Out

"The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day."

Looks like the people on the Greek Titanic have figured out it isn't unsinkable

http://www.spiegel.de/international/europe/0,1518,712511,00.html

Jager06's picture
Jager06
Status: Gold Member (Offline)
Joined: Dec 2 2009
Posts: 395
Re: Where Greece is we will soon follow

Whatever happened to "buy and hold" and that old standby..."Dollar Cost Averaging".

Call the bottom on this one and.......you will still be at the bottom. Wherever you go, there you are?

Gold and Silver make good holds right now, but whats next? What is the war time investment going to be? Is anyone else expecting a major outbreak of resource wars right after we get done having the debt and GDP kicked out of us?

Am I looking too far forward?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments