18 January 2009

Depression & End Game - latest "chatter"

thx to Ray......

"When you are in periods where there are deep outliers to the data because of very real turning points in the economy (such as we are going through now), the seasonally adjusted numbers can mask the real underlying trends, both up and down - - John Mauldin

The Endgame

We are in completely uncharted territory in terms of the economic landscape. Like the USS Enterprise in Star Trek, we are boldly going where no man has gone before

Employment Numbers Are Worse Than Posted

We were told Thursday that initial unemployment claims were 'only' 524,000. The talking heads immediately said that was proof the economy is simply bad, not falling off a cliff. Again, like last week, that seasonally adjusted number masks the real number, which was 952,151. That is not a typo. There were almost 1 million newly unemployed last week...

The continuing claims data leaped over 500,000 to (again, not a typo) 5,832,746. The length of time people are staying unemployed is also rising rapidly. We are up almost 1.5 million new continuing claims in just the last five weeks. That is a stunning rise of over 30% in unemployment claims in just over a month. The data is truly ugly, but it is what it is...

It is not a question of whether or not there will be massive stimulus. The question is simply how much and for how long


The Consumer Price Index numbers...tell a tale of deflation. On an annualized basis, the CPI for the last three months was a negative -12.7%. Even core CPI, which is without food and energy, was a minus 0.3%. The CPI for 2008 was just 0.1% for the whole year. This was the smallest calendar-year increase since 1954, and it's down from 4.1% for 2007...

In the US, we have seen massive wealth destruction on personal balance sheets. At the end of the third quarter the losses totalled $5.6 trillion, between housing and stocks. They could be over $10 trillion at the end of the fourth quarter. (Source: Hoisington) The losses will almost certainly top $12 trillion by the middle of the year as housing continues to deteriorate.

Pick any country in the developed world or much of the developing world, and it's the same picture: wealth destruction

We have seen at least a trillion dollars of capital on financial companies' balance sheets disappear; and given the recent spate of bailouts, it is likely to get worse.

...a credit crisis and imploding balance sheets, a housing crisis, and a massive earnings shortfall that yields a relentless stock market drop are all independently deflationary. The combined forces are massively so.[/]

To think that a mere trillion or so dollars in stimulus will be enough to reflate the US and the world economies is simply not realistic.

...We have permanently seared the psyche of the American consumer. Consumer spending is likely to drop at least 6-7% over the next two years, and maybe more. The combination of all three bubbles (consumer spending, credit, and housing), which were made possible by increasing leverage and poor lending standards, is by definition deflationary.

The End Game

The US (and indeed soon the whole world) is in a deep recession. The US is going to try and combat that recession with stimulus on a scale never before tried. It is a grand experiment. On the one hand is the theory that you can allocate stimulus and keep the velocity of money from falling. On the other hand is the theory that once the deleveraging process starts, there is not much you can do about it: it is going to work its way through the economy. We are about to find out which theory is correct.

Pushing on a String

US debt to GDP is now over 300% and has risen precipitously in the last ten and especially the last five years. Leverage and debt fueled the growth of the economy, but debt growth hit a wall and now the deleveraging process is the painful result. This brings us to the worst-case scenario: that all the efforts of the Fed will go for naught and that we are in a liquidity trap...

Monty Guild

We...predicted several months ago that we were entering a moderate depression, rather than a recession during the current downtrend, few have agreed with our view.

"The annualized real contraction for fourth-quarter 2008 retail sales was 17.1%"

"Consistent with a still-deepening recession, fourth quarter 2008 production showed an annualized quarterly contraction of 11.5%, following an 8.9% contraction in the third quarter."

"A depression is defined (Shadow Govermenment Statistics - SGS) as a recession where peak-to-trough contraction exceeds 10%, a level currently exceeded in annualized terms by both fourth-quarter real retail sales and industrial production."

The above data by SGS show that the trends in retail sales, which is considered a leading economic indicator, and in industrial production are strongly indicative that a depression is in the process of developing in the United States.

Another Great Depression, by James Turk

I don't like to start any new year on a gloomy note. I am by nature an optimist, but I am also a realist who readily faces facts. Right now those facts are not very pretty and suggest to me that the world has entered into another Great Depression. Here are some shockers about the US economy that are worth pondering.

The National Bureau of Economic Research reckons that the present recession began in December 2007. In only one month since then has the US economy not lost jobs, but worryingly, the job losses are occurring with increasing momentum suggesting that the economy is spiraling downward."

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