Friday, August 16, 2013

Depression Year 6: The Shoe Finally Drops

By Alexander (Sandy) Prisant

(Reuters) - U.S. consumer sentiment ebbed in August and residential construction rose less than expected last month, potentially dimming (US economic) hopes…” (8/16/13)

The beginning was 5 1/2 years ago. It was January 2008. And it was Chicken Little's Moment.  The sky was actually falling. 

One morning on the radio, they indifferently reported that in the middle of the night, the Federal Reserve, in conjunction with Europe had cut interest rates a whopping two (2) percent "to stabilize global markets".  Two Percent. In the middle of the night.

My wife Susan and I were in South Florida, seeking a home for retirement.  We looked at each other across coffee in bed, with wide eyes.  We're just writers and teachers and like good interior design.  We're not economists.

"This sounds like a Depression, " I said. Susan nodded. We talked about ramifications. The first would be the huge real estate bubble in the middle of which we were sitting. It would collapse just as we were buying.

 We drove to our agents, Coldwell Banker. Susan went in and sat down with the manager. She explained In basic terms about the Fed and what was about to happen and that real estate prices would go first.   The agent rejected every word of it. "South Florida prices" she declared,"  are very strong and will not drop."  We never talked to Coldwell Banker again.

One university defines a Depression as: "a severe and prolonged downturn in economic activity... a depression is commonly defined as an extreme recession that lasts two or more years...(it) is characterized by factors such substantial increases in uemployment, a drop in available credit, diminishing output, bankruptcies, sovereign debt defaults and reduced trade and commerce..."

 Does this sound like the country you're living in?

 A noted economist confirms: "A depression is a sustained and severe recession. Where a recession is a normal part of the business cycle, lasting for a period of months, a depression is an extreme fall in economic activity lasting for a number of years...some economists believe a depression encompasses only the period plagued by declining economic activity. Other economists, however, argue that the depression continues up until the point that most economic activity has returned to normal."

 Bottom Line: We are year #6 of a Depression.
·         A smaller percentage of the population  is working today than in the frightening days of 2009 (59% to 64%)

        At current growth rates, employment will not come back to "normal" until between 2020 and 2025.

       In the July 2013 jobs reports, over 60% of jobs created were in those positions classified as "the lowest paying jobs"

         The UN Industrial Development Organization reports "a sharp fall in production in North American in this period."

And yet only now is the White House grasping this is NOT another cyclical,short recession, but an upheaval requiring structural change to rebuild the economy. Reports are they are thinking about this only now. In Year  #6 of this Depression.

David Brooks of The New York Times, notes  " We have politicians talking about very small fixes to enormous problems that are structural."

No one is being more honest than Mr Brooks.  He is talking about the need to create new economic engines. About transforming the workforce and the way we work--not just one or two retraining courses.

He suggests:

"Part of the problem has to do with structural changes in the economy.  Sectors like manufacturing, agriculture and energy have been getting more productive, but they have not been generating more jobs. Instead, companies are using machines or foreign workers.

 "This is a big problem. It can’t be addressed through the sort of short-term Keynesian stimulus some on the left are still fantasizing about. It can’t be solved by simply reducing the size of government, as some on the right imagine. “

 You won't hear a single politician talk like this. Or about this. The White House, only now, is beginning to THINK about this. But this, dear reader, is the huge challenge we are facing for years to come.

 Beginning in Year #6 of this Depression.