Recessions are a odd topic to read about, especially if you enjoy reading the economists take on what is actually occurring in the country at this point in time. There are times when I believe I should just pick out one economist and follow his advice and prognostications blindly. However, it seems that many of the great economists are having a difficult time agreeing on even the most basic of ideas about where we are in this calamity of financial errors and misjudgments we are currently calling a recession, or a depression, or a liquidity trap…pick any term you find convenient to define our current situation.
And economists, as a whole, show a remarkable ability to rationalize away conditions that a lowly trader like myself find remarkable. With the job market in a near free-fall, it seems to me that fewer workers making less money would have less money to spend on consumer items. That is just a common sense sort of explanation many economists have a difficult time swallowing. No, I have been reading, of late, of a phenomena called the jobless recovery that is taking foothold in our economy and the wonderful green shoots that are springing up like wild flowers on a warm spring day. Oddly enough, these green shoots are not readily apparent to the average American citizen, especially those unemployed and having a difficult time finding the most menial of work.
Paul Krugman, my favorite economist to read and the one economist I seem to relate to the most, wrote a nice piece the other day concerning the national debt. His point was something to the effect that a nine trillion (yes, trillion) deficit is really not such a large number. This one had me scratching my head as nine trillion is, well, nine trillion dollars, and that is a whole lot of green stuff, anyway you cut it. Krugman made comparisons to different times in our history of debt to GDP ratios. Our current GDP stands at around 14.9 trillion, so anyway you cut it 9 trillion is a healthy cut when compared with our current GDP…but Krugman points out that by the time we reach the 9 trillion figure the GDP will probably stand at closer to 22 trillion, so it’s really not all that bad. Funny thing, though, it still sounds like an awful lot of money, any way you cut it. Of course, we have to pay interest on all that money, which makes it essentially a non-negotiable part of our federal budget. Add that to the massive entitlements we already have and the non-negotiable segment of our budget might well reach 70%, with only 30% of our budget discretionary.
Going back to that darn employment problem, though, would seem to be an important component of any recovery. In order for the country to recover, it would seem that we ought to have some money to spend, which in terms causes manufacturing firms to produce more, and, in turn, buy more raw materials…well, you can see how the supply chain works. But Dennis Lockhart, the Atlanta Fed President stated yesterday:
“Some of these adjustments, however, are more “structural” in nature. By this, I mean that the economy that emerges from this recession may not fully resemble the prerecession economy. In my view, it is unlikely that we will see a return of jobs lost in certain sectors, such as manufacturing. In a similar vein, the recession has been so deep in construction that a reallocation of workers is likely to happen—even if not permanent. …”
Did he say permanent? I think he did. That is not a great word to see coming from a gifted individual who is an important component in our economic decision making process. Thankfully, he implied that the loss of jobs in construction may not be permanent, but his prognosis on the employment front certainly doesn’t make one do somersaults of jubilation.
One of the few bloggers, and probably the knowledgeable, is the writer at Calculated Risk, and his prognosis for matters in the Commercial Real Estate economy are downright negative. I am not a complicated guy, and I also am not a real avid mall dweller, so I went to the local mall and found myself shocked at the number of shuttered storefronts. Obviously, people are not spending as much money as they once were or these stores would be thriving, as they were the last time I went to mall. ( I have to admit it has been a year or so since I’ve been to a mall, I try to avoid mall shopping at all costs. Perhaps I am a bit phobic about malls, but they are just to antiseptic for my taste).
Joe Stiglitz, another Nobel Prize winnner like Paul Krugman, is leaning on the pessimistic side of economic recovery and there is the “‘world is ending” cabal (ie-Financial Armageddon) who see nothing of great value occurring in the economy. Then, on the far right conspiracy side, sites like Prison Planet have claimed massive government conspiracies in nearly every aspect of our society. I must admit, though, I get a great chuckle out of Prison Planet, even though it seems to have a wide readership because I believe people are just plain frustrated with our current economic malaise.
But it’s this unemployment thing that is really bothering me, and I don’t see how a country can stage a major recovery if we don’t have a healthy, employed population spending money. Credit cards companies (don’t even get me started on those parasitic worms) have cut back credit card debt drastically to lessen their risk exposure…so where is this spending going to come from other than the government?
I think we need to get some people to work and fast, then again, what do I know? I am just a trader.
Where in the Hell are we in this ongoing mess?
I was listening to Dr. Roubini on a PBS clip last night and he believes we have averted the possibility of a depression. Hmmm….I decided that was some good news, I think.
As of late, though, I have felt manipulated by the powers-that-be (and you can decide just who the powers-that-be actually might be) as we have had this tremendous run-up in stock prices while unemployment has continued to march straight upward. Good Grief…the government’s official number is 9.45%, and some economists are squabbling that the calculation is artificially low, and if we used a non-manipulated formula for unemployment, say the one we used in 1982, the number would be much higher. And then there is the foreclosure issue…
The rate of foreclosures has also marched steadily upward, which would indicate that people do not have the money to pay for their homes. Or perhaps, they do not find it financially expedient to pay their homes and are diverting their funds to savings or some other investment vehicle, which I find highly unlikely.
The credit markets are broken, with the government guaranteeing everything from car manufacturer loans to bank accounts, to….well, you name it.
My point is simple: The stock market is disconnected from the economic health of the country. Granted, the VIX has stopped oscillating like a seismograph needle in 8.4 earthquake, but the markets, of late, would have you believing that everything is honky-dory.
I don’t feel honky-dory. No, the footing on the path I am walking feels loose and very sketchy.
With the amount of money we have pumped into the economy, a great deal of the looming disaster has been put off, but has it been put off forever, or have just put it off for another ten years?
In the past, countries that have inflated their M1 and pumped the kind of stimulus money into their economies have had a nasty dust-up with inflation, and that worries me. Where are we headed with inflation? I have this niggling that there is inflation out there waiting…at least it ought to be waiting.
No, none of the current economic data makes sense to me, there are too many asymmetric variables to account for to let me breath deep and comfortably.