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The Recession is Over, the Depression Just Beginning
Front page / Opinion / Columnists
11.01.2010 Source: Pravda.Ru
By Stephen Lendman
In late 2009, former Merrill Lynch economist, now with the Canadian firm, Gluskin Sheff, said the following:
"The
credit collapse and the accompanying deflation and overcapacity are
going to drive the economy and financial markets in 2010. We have said
this repeatedly that this recession is really a depression because the
(post-WW II) recessions were merely small backward steps in an inventory
cycle but in the context of expanding credit. Whereas now, we are in a
prolonged period of credit contraction, especially as it relates to
households and small businesses."
Summarizing his 2010 outlook,
Rosenberg highlighted asset deflation and credit contraction imploding
"the largest balance sheet in the world - the US household sector" in
the amount of "an epic $12 trillion of lost net worth, a degree of
trauma we have never seen before," even after the equity bear market
rally and "tenuous" housing recovery likely to be short-lived and
illusory with a true bottom many months away.
As a result,
consumer spending will be severely impacted. "Frugality is the new
fashion and likely to stay that way for years," highlighting a secular
shift toward prudence and conservatism because households are
traumatized, tapped out, and mindful of a bleak outlook. It shows in new
consumer credit data, contracting $17.5 billion in November, the
largest monthly amount since 1943 record keeping began.
Surprisingly,
only people over age 55 have experienced job growth. All others have
lost jobs, can't get them, and for youths the "unemployment crisis (is)
of epic proportions." In addition, there's a record number of Americans
out of work for longer than six months, in part because the "aging but
not aged" aren't retiring, and those who did are coming back, of
necessity, to make up for wealth lost.
Rosenberg stresses that
for a sustainable recovery to begin, the ratio of household credit to
personal disposable income must revert to the mean and reach an excess
in the opposite direction. In the 1950s, it was 30%. Today its 125%,
down from the late 2007 139% peak, with a long way to go taking years,
and when it's over, another $7 trillion in household credit will have to
be extinguished.
Until he retired in 1992, Robert Farrell was a
highly respected Merrill Lynch market strategist and theorist, best
remembered for his "10 Market Rules to Remember." Number one was that
"markets tend to return to the mean over time." Number two was that
"excesses in one direction will lead to an opposite excess in the other
direction," and number nine was that "when all the experts and forecasts
agree -- something else is going to happen."
According to a
November National Association of Business Economics (NABE) survey, 48
top economists expect the US economy to grow 3.2% in 2010 even though
the job outlook is bleak. Overall, they're so optimistic that only 15%
want more stimulus, 40% said leave the present package in place, and the
other 45% want the amount approved but not spent cut because it's not
needed. At the same time, according to Investors Intelligence, market
sentiment is at the highest level since December 2007, shortly after
equities peaked, headed down, and world economies began to crator.
In
his January 5 commentary, David Rosenberg notes that "Sentiment is
wildly bullish....almost every survey is overwhelmingly constructive,"
yet reviewing 2009's market performance in the face of economic
fundamentals "almost wants to make you believe in the tooth fairy." He
explained that "small business (still faces) a credit quagmire," there's
no housing recovery, and household spending is retrenching and
hunkering down for the long haul.
The latest US nonfarm payroll
report provides more confirmation. Although the headline number was a
modestly anemic -85,000, Rosenberg called it "horrible" because its
details showed consistent weakness. As a result, he estimates a more
accurate "465,000" December decline, based on what's occurring at the
small company level "where the trend in orders, output, sales and
employment" has been dismal.
Importantly, economic sectors
sensitive to the business cycle actually "cratered" in December, "which
flies in the face of the overwhelming view that this recession has fully
run its course." Also disturbing was that while "temp help" gained
47,000 jobs, its fifth straight increase, full-time employment "plunged"
647,000 last month, a clear sign that no one is hiring, especially
small businesses that do most of it.
The reason headline U-3
unemployment held steady at 10% was because the labor force plunged by
661,000, the sharpest (discouraged worker) decline in nearly 15 years.
The broader U-6 unemployment is 17.3%, and economist John Williams
(shadowstats.com) calculates it more accurately at 21.9% by excluding
manipulated changes for more valid figures. He estimates about 500,000
December job losses, not the sanitized U-3 number. He also says that a
"major double-dip downturn should be obvious by mid-year."
According to Tax Commissioner Cory Fong:
North
Dakota has been able to weather the economic crisis. "While other state
governors and legislatures are looking for ways to raise revenue
through raising taxes and cutting services, we just came through a
historic session of funding both our important priorities and
substantial tax relief....The winners are families, businesses and the
State of North Dakota," because it's unique in one important respect.
It's
the only one with a state-owned bank (The Bank of North Dakota - BND)
that sustains its distinctiveness and strength. As a result, it had the
nation's lowest unemployment rate of 4.1 at year end 2009 and created
jobs throughout the crisis.
Established in 1919, it's been a
"credit machine" ever since, according to financial writer Ellen Brown,
delivering "sound financial services that promote agriculture, commerce
and industry," something no other state can match because they don't
have state-owned banks.
With one, BND "create(s) 'credit' with
accounting entries on (its) books" through fractional reserve banking
that multiplies each deposited amount magically about tenfold in the
form of loans or computer-generated funds. As a result, the bank can
re-lend many times over, and the more deposits, the greater amount of it
for sustained, productive growth. If all states owned public banks,
they'd be as prosperous as North Dakota and be able to rebate taxes and
expand public services, not extract more or cut them.
Brown explains that the BND:
"chiefly
acts as a central bank, with functions similar to those of a branch of
the Federal Reserve," that's neither federal or has reserves as is owned
by major private banks in each of the 12 Fed districts, New York by far
the most dominant with Wall Street's majority control and a Fed
chairman doing its bidding.
In contrast, BND is a public bank,
100% owned by the state, operating in the public interest and those of
the state. It "avoids rivalry with private banks by partnering with
them." Local banks do most lending. "The BND then comes in to
participate in the loan, share risk, buy down the interest rate and buy
up loans, thereby freeing up banks to lend more. (One of its functions)
is to provide a secondary market for real estate loans, which it buys
from local banks. Its residential loan portfolio is now $500 to $600
billion" in a state with around 700,000 people and thriving.
- an
Archives of Pediatrics and Adolescent Medicine reported study said
about half of US children will rely on food stamps during some portion
of their childhood; for black children, the figure is a shocking 90%;
and
-- another study showed less than half of college students
graduate on schedule, and most who quit or temporarily drop out, do so
for economic reasons; in addition, graduates face bleak employment
prospects in the worst job market in decades.
Nonetheless, in his
upcoming State of the Union address, Obama is expected to repeat his
post-China trip message that fiscal austerity (meaning sharp social
spending cuts) is necessary to cut the public debt. In other words,
bankrolling Wall Street, health insurers, the drug cartel, other
corporate favorites, and war profiteers will continue while working
Americans won't be helped during the greatest economic crisis in their
lifetimes, a protracted one that will last years.
Looking ahead
in 2010, the state of the nation for most people is dire and worsening,
and 2011 looks no better. City mayors are on the front lines dealing
with it. So are governors at their state levels, but increasingly
they're getting less help from Washington from an administration with
priorities leaving them out and the millions they serve, on their own
and out of luck.
Its function in the property market
helped it "avoid the credit crisis that afflicted Wall Street when the
secondary market for loans collapsed in late 2007 and helped it reduce
its foreclosure rate....(Its other services) include guarantees for
entrepreneurial startups and student loans, the purchase of municipal
bonds from public institutions, and a well-funded disaster loan
program." When the state didn't meet its budget "a few years ago, the
BND met the shortfall."
In sum, state-owned banks have "enormous
advantages over smaller private institutions....Their asset bases are
not marred by oversized salaries and bonuses, they have no shareholders"
demanding high returns, and they don't speculate in derivatives or
other high-risk investments. As a result, BND is healthy with a 25%
return on equity, paying "a hefty dividend to the state projected at
over $60 million in 2009" and well over five times that amount in the
last decade, so it begs the question why other states don't operate the
same way. If enough of their residents demanded it, they might and not
suffer the way nearly all of them are today, two notably - California
and Michigan.
California - A State in Crisis
Conditions
are so bad that rumors suggest a future bankruptcy that would be
unprecedented if it happens, but a more likely worst case scenario would
be default. Either way is the same if on all state obligations, and in
1975, New York city was on the brink with its lawyers at the State
Supreme Court filing a bankruptcy petition on October 17 and police cars
standing by to serve papers on the city's chief creditors, the banks.
At
the last moment, it was withdrawn after the United Federation of
Teachers used union retirement funds to back city loans and saved the
day. At the time, few knew the danger or what it meant. Today many
states face the same bind with California most significant because of
its size. As a nation, it would rank 8th economically in the world, so a
default would affect the entire country, and perhaps other states would
follow.
Theres is some liberal stuff in here but its interesting.
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God, however, looks on the heart. And from his ultimate standpoint,
fallen man has no goodness, in thought, word, or deed. He is therefore
incapable of contributing anything to his salvation.
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