Economy Is Going to Get Much Worse

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.

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