PEEK

Economy Is Going to Get Much Worse

The so-called recovery is mostly smoke and mirrors.

I think the economy is pretty darn awful, but with record profits on Wall Street and all the happy talk about a recovery from the recession (albeit a jobless recovery) it's confusing for many people as to what our economic future really holds. Well, here's relevant statistic that sums it up nicely, one that shows the so-called recovery is mostly a smoke and mirrors vaudeville magician's routine by the same people who either got us into this fine mess in the first place, or enabled the ones who did. Take a peek at this excerpt from Inner Workings David Goldman's blog at Asia Times:

This morning’s news that housing starts “unexpectedly” dropped by 11 percent month on month is consistent with my grim view of the American economy. The crystal-meth monetary policy at the Fed makes everyone feel better, until they don’t. The nonstop rise in the price of dollar hedges tells us that it can’t last forever. Large balance sheets attached to the Fed’s money pump can show profits, and the price of spread assets (as PIMCO’s Bill Gross keeps emphasizing) is stupid rich. But at the capillary level, through, the economy is dying and gangrene is setting in.

Here’s year on year growth in commercial and industrial loans from weekly reporting banks in the US:

[Attached chart shows 20% decline in commercial and industrial loans in the 12 months]

A TWENTY PERCENT decline in commercial and industrial loans? That's not a recovery, it's a fricking catastrophic collapse in the fundamental underpinnings of our economy. It's Wall Street sucking Main Street and Government dry, grabbing all the cash while they can. Not surprisingly they are using that cash pump from the Federal Reserve to drive up commodities prices. What does that tell you? It tells me things are about to get much, much worse, and no one in Washington has a clue what to do. It's, and let's be honest, the worst economic performance since the Great Depression. Jobs that created the foundation of our economic growth in the 20th Century have flat disappeared, as Nouriel Roubini (you know, the economist whose predictions were right all along while the Friedman disciples like Alan Greenspan fiddled as the US economy burned to the ground) makes clear.

 

While America's official unemployment rate is already 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million.

Moreover, the total effect on labour income – the product of jobs times hours worked times average hourly wages – has been more severe than that implied by the job losses alone, because many firms are cutting their workers' hours, placing them on furlough or lowering their wages as a way to share the pain.

Many of the lost jobs – in construction, finance, and outsourced manufacturing and services – are gone forever, and recent studies suggest that a quarter of U.S. jobs can be fully outsourced over time to other countries. Thus, a growing proportion of the work force – often below the radar screen of official statistics – is losing hope of finding gainful employment, while the unemployment rate (especially for poor, unskilled workers) will remain high for a much longer period of time than in previous recessions. [...]

[T]he credit crunch for non-investment-grade firms and smaller firms, which rely mostly on access to bank loans rather than capital markets, is still severe. Or consider bankruptcies and defaults by households and firms. Larger firms – even those with large debt problems – can refinance their excessive liabilities in or out of court, but an unprecedented number of small businesses are going bankrupt. The same holds for households, with millions of weaker and poorer borrowers defaulting on mortgages, credit cards, auto loans, student loans and other consumer credit.

Consider also what is happening to private consumption and retail sales. Recent monthly figures suggest a rise in retail sales. But, because the official statistics capture mostly sales by larger retailers and exclude the fall by hundreds of thousands of smaller stores and businesses that have failed, consumption looks better than it really is. [...]

Moreover, income and wealth inequality is rising again. Poorer households are at greater risk of unemployment, falling wages or reductions in hours worked, all leading to lower labour income, whereas on Wall Street, outrageous bonuses have returned with a vengeance. With the stock market rising and home prices still falling, the wealthy are becoming richer, while the middle class and the poor – whose main wealth is a house rather than equities – are becoming poorer and being saddled with an unsustainable debt burden.

So, while the United States may technically be close to the end of a severe recession, most of America is facing a near-depression. Little wonder, then, that few Americans believe that what walks like a duck and quacks like a duck is actually the phoenix of recovery.

The Tea Baggers and their talk of a tax revolt and railing against the mythical socialist takeover of America by the Obama administration isn't the problem.

The problem is that we've been scammed by Wall Street financial firms (the megalithic survivors) into juicing their balance sheets while getting less than zero in return for our billions of dollars of bailout expenditures by the Fed and Congress and trillions more for Federal guarantees of Wall Street's toxic junk financial derivatives.

In short, our investment of tax dollars in an essentially opaque, unregulated, subsidized and protected financial sector is proving to be a very, very bad bet for the future of any real economic recovery for the vast majority of Americans who don't work for Goldman Sachs and their ilk. This isn't a rational free market by anyone's definition. It's a con game, one that Obama's economic team has been more than willing to ignore in the interest of helping their friends, even if that means unacceptably high unemployment and lower investment in the real drivers of our economy -- small businesses, workers and manufacturing.

And unless we see a sea change in the economic strategies being pursued by the Obama administration, any talk of a fundamental political realignment in which Democrats benefit from a generational shift in political power is as much a pipe dream as Karl Rove's plan for a one party Republican state. Indeed, if Democrats in the Executive Branch and in Congress continue to ignore the fundamental changes in economic policy necessary to reverse our present course, the likelihood of something far sinister, a fascist or neo-fascist movement or a coup by a right wing military junta is not out of the question. Because when democratic civil governments becomes unable or unwilling to address fundamental issues of economic security they can lose their legitimacy literally overnight.

Just look at the history of the Weimar Republic, or Italy after WWI, if you want an object lesson in democratic governments that failed because their political leaders, operating within a weak, corrupted and gridlocked systems, were more concerned about their political careers and futures than addressing the critical economic issues that had spread misery and despair among millions of their constituents.