The world appears to be worth (as a whole) $150T. And we owe $500T.
That's gonna be a bit of a problem.
Posted on 10/18/2010 8:24:07 AM PDT by SeekAndFind
The National Bureau of Economic Research has declared that the Great Recession ended in June 2009. At first glance, some may see the end of the recession as vindication of the White House’s stimulus and its other aggressive fiscal-policy initiatives. But a closer look at the numbers suggests the president and his economic advisers may have significantly misdiagnosed the nature of the recession.
President Obama frequently invokes the specter of the Great Depression in speeches to the public, knowing full well that the reference conjures up images of mass unemployment, breadlines, and despair. In one of his more recent high-profile appearances, the president forcefully claimed that his administration’s policies staved off a second Great Depression.
True enough, the Great Recession lasted 18 months. That’s the longest recessionary period since 1929. But this fact reveals far less than the president implies. The Great Depression was a decade-long economic roller coaster. The economy fell into a 43-month abyss, grew for a while starting in 1933, and then plummeted again into recession in 1937. By some estimates, unemployment peaked at one third of the national labor force.
The Great Recession isn’t anywhere close to those numbers. While the president has accurately called the absolute numbers of jobs lost “unprecedented,” the economy is so much larger now that the official unemployment rate has barely nudged up to the 10 percent mark. In 1929, the economy generated about $977 billion in goods and services (in 2005 dollars). In 2009, in the midst of the Great Recession, the economy generated $12.9 trillion (down from $13.2 trillion in 2008).
Indeed, the Great Recession is significant only when compared with the relatively mild recessions of the recent past. Most recessions have been short and shallow. The recession of 1973–75 was 16 months long, and unemployment peaked at 8.5 percent. The recession of 1981–82 was also 16 months long, and unemployment peaked at 9.7 percent — about where it stands today.
These similarities are hugely important for economic policy. For all practical purposes, the Obama administration’s entire economy-policy framework is built on bolstering aggregate demand by goosing consumer spending and ramping up government spending.
In a world where national output has declined by nearly half — as it did from 1929 to 1933 — this approach is plausible (if still controversial). But in an economic climate that is characterized by recession, not depression, this aggregate-demand-driven approach is far more suspect. Recessions are typically caused by industrial restructuring or realigning supply and demand, not massive, across-the-board declines in output or income.
The steep recession of 1973–75, for example, was triggered in part by price shocks resulting from a quadrupling of oil prices. Persistent inflation complicated matters as the Federal Reserve used monetary policy to keep interest rates low while financing federal spending for the Vietnam War and massive expansions of social programs. Both these price effects resulted in significant reallocations of resources in the private sector as businesses, investors, and consumers adjusted to the new realities of higher energy costs, less access to private capital, and higher consumer prices. In economic terms, relative prices changed, and we had to adjust.
It is less well known that during this period, there was a dramatic shift in international competitiveness in manufacturing that required domestic industries to restructure and become more competitive. Once the economy reset its industrial “mix,” it began to grow again.
The steep recession of 1980–81 was accompanied by a further, even more dramatic restructuring of American industry. Heightened international competition, most notably in automobiles, steel, and electronics, forced American industry to tighten its belt, streamline, innovate, and shift away from mass production in order to survive. This was the period when Japan, not China, was supposed to be eating our lunch. Economic downturns also took on distinctly regional characteristics: Midwestern and northeastern manufacturing economies crumbled while service-based and “new”-manufacturing southern and southwestern economies boomed.
The Great Recession’s proximate cause was the bursting of the housing bubble, but this is far too simple an explanation. Exotic financial instruments, with the help of federal housing and monetary policy, emerged to satisfy what seemed like an endless thirst for real-estate investment. But the impacts were not even. Texas has hardly experienced a blip, while California, Florida, and Las Vegas have seen their housing markets collapse. Midwestern states such as Ohio and Michigan continue to get hammered as their economies restructure and low incomes undermine local housing markets.
The nuances of recessionary declines are apparently lost in the current White House policymaking apparatus, which seems consumed with the belief that a massive federal response is necessary. President Obama continues to invoke the simplistic message of Great Depression–era decline, shunning the complexities of recent recessions that are likely much more relevant to today’s economic challenges.
At the end of the day, the capital markets that became entangled in the Gordian Knot of financial-industry excess will have to lead the nation out of its present woes. Until we find a way to cut this knot, no amount of feel-good government spending is going turn the economy around. Indeed, the solution may be the most politically difficult decision of all: Let private markets sort themselves out to reestablish a foundation for long-term growth.
– Samuel R. Staley is Robert W. Galvin Fellow and Director of Urban & Land Use Policy at the Reason Foundation.
The world appears to be worth (as a whole) $150T. And we owe $500T.
That's gonna be a bit of a problem.
Very well written. Much better than the Chicken Little financial scare garbage that usually makes its way in here.
LLS
You can’t be serious?
The man doesn’t even adjust his metrics to account for all the BS games the governments around have done to hide the truth from the public.
You probably believe unemployment today is around 10%...guess what if we applied the same rules to determining unemployment today back in the Great Depression it would fall in the same ballpark.
Also our debt situation is massive compared to what is was in the 30’s.
The state of the financial markets in our country especially around real estate are about to experience an upcoming armageddon...we are talking about several to many trillions of dollars that is just going to disappear. Just look at the latest profit reporting of Citigroup - complete fabrication.
How do we allow financial institutions to completely lie and misrepresent their financial condition? Because it is convenient politically and that ultimately where all the danger lies.
You want to be an optimist but you are blind to what is actually happening.
BTW - you don’t know you are in a depression until you are deep into it...my guess would be we are in a depression now and it only going to get worse and it will be 15-20 years before we being to crawl out of this hole.
This isn’t chicken little...this is having your eyes open so you can make the appropriate decisions for your family and not end up being a mis-informed sheeple victim.
First of all, I think a lot of the basis for comparison between today and the 1930s is inaccurate because we've come to accept underlying changes that mask a lot of the problems we face. For example, historical accounts from the 1930s are filled with stories about long lines at soup kitchens, unemployed people living in shanties or government camps as they worked on Civilian Conservation Corps projects, etc. I think we still face a lot of the same problems today (and in some ways they could be worse), but we've just sanitized them so they aren't as obvious. Instead of soup kitchens and bread lines, we have tens of millions of people living off food stamps (they're even electronic cards now) and other government assistance. And the long-term unemployed don't have to live in shanties or work on government-funded projects because they can "earn" more money sitting home collecting unemployment checks.
On another point, the author claims that the Great Depression was truly catastrophic (compared to today) because economic output declined by 50% from 1929 to 1933. What exactly does this mean in today's context, when an enormous share of our "economic output" involves financial transactions (the mortgage/housing debacle is a perfect case in point) that increasingly seem like nothing more than smoke and mirrors?
Author is wrong on UE statistics. The books were SIGNIFICANTLY cooked during Clinton and still are. The real measure of UE is about 18%. Consequently everything else he says is invalid.
The real unemployment rate is probably around 18%, not near the same as depression numbers.
You cannot have a recession with positive GDP numbers, much less a depression.
I’m not an optimist about it all but I’m certainly saying armageddon.
econ bump for later.........
I don’t think the Great Recession has ended. I think that it would have ended if not for government interference and bailouts. I think the books are cooked, that the economy isn’t growing and that we’re headed for serious economic problems.
lol positive GDP...you seriously believe right now we are actually experiencing positive GDP...
Do you know how they have changed the variables that calculate the GDP?
Real GDP isn’t calculated anymore...none of the statistics surrounding the economy, banks, etc are real...our economics statistics have moved 100% into the realm of acturail science...they are no longer interested in the truth they are interested in manipulating a formula to get the answer they want.
btw even if you believe that the GDP is positive the pct uptick roughly translate into the artificial pump and dump of stimulus into the economy. Which is just another artificial bubble which has to pop.
There is no interest in solving the problems. The bankers were banksters before TARP and all we did there was give them a license to steal and that is exactly what they are doing.
If we had allowed the free markets to punish the crooks and have them go out of business our banking world would actually be on a positive recovery path right now...but what do we get...what do we deserve from the miscreants in DC...a bank like Citigroup that can completely fabricate an earnings report today...
It’s incredible.
How exactly do you think any of this is good news especially when you realize that somehow all of this has to be paid for?
This wouldn’t be happening if we were really seeing something positive happening. Keep in mind with the market looking forward with a complete Marxist wipeout in Nov...the insider selling trend is absolutely clear.
http://www.zerohedge.com/article/insider-selling-buying-update-2019-1
http://www.zerohedge.com/article/bearish-vix-bets-surge-2010-highs
The smart money knows this is total BS...
One reason for this is that a lot of our economic growth over the last few decades has been driven by what I call "monetization out of thin air." This would involve activity that never showed up in GDP calculations previously because it didn't involve financial transactions, but shows up in our GDP figures now because we pay for things that we used to do "for free."
I offer residential landscaping and child care services as two good cases in point. When I mowed my family's lawn as a kid as part of my normal Saturday chores, my activity was never included in any GDP measurements. But now that my parents -- living in the same home -- pay a landscaper to do it, it's suddenly "economic activity" and measured in GDP figures even though the end result (a fresh-cut lawn) is the same.
I really can’t conceive what TPTB are going to dream up for the next installment of extend-and-pretend.
It’s got to be pretty wild though.
fellow traveller
How? Because that person thinks they don't matter. That is why a great number of analysts - ranging from socialists like Paul Krugman to libertarians like Mr. Staley - are missing the bigger picture: we are broke and cannot ever "grow" our way out of it. It's not because we Americans lack genius or imagination, but because it is now impossible absent a permanent and immediate cap to all entitlement programs (politically impossible) or inflation (which is the Fed's current but unstated policy) that will essentially destroy our economy in an effort to save it.
Subtract the government spending component and our GDP is (and has been) negative.
That’s one side of it.
What about the 42 million Americans on food stamps?
The monetization is key and it has been happening behind the scenes at a frightening pace.
As some point they have to extract all of this worthless paper...
It just another form of ponzi.
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