A rebuttal to China crashing soon

Minxei Pei writes an interesting article in The Diplomat titled "China's Economy: Seizure or Cancer".

In it he outlines a number of the obvious features that have been discussed on this blog about China's overall economy.  He dissects the current situation and asks whether there will be an immediate heart attack that hobbles the beast or a systemic cancer that eventually kills it.

He refers to a "heart attack" scenario where a cascade of events, precipitated by a slowdown and excess debt, cripples China.  In his perspective China's communists will force the banks to defer losses and provide a backstop to prevent further contagion.  He states:

But China is different. Because the banking system is effectively owned and controlled by the state, a banking crisis won’t materialize unless the state itself is insolvent and Chinese depositors have completely lost confidence in the state’s sovereign guarantee of its banks. This unique character of the China’s state-owned financial system is the cause of the country’s inability to allocate capital efficiently. However, in the short term, this structural flaw may turn out to be an asset in averting a seizure of the financial system.

As in the global meltdown of 2008 and earlier banking system upsets in China, this approach has worked.

On a second level, if the economy doesn't crash immediately over the course of the next several months, the author perceives a potential "cancer" in the nature of the communist-capitalist hybrid.

Despite the threat of a seizure in the near term, the greater danger to the Chinese economy is its structural inefficiency, which is deeply imbedded in a state-led development model...

The investments made by the Chinese state may have given the Communist Party a lot of prestige (think of the country’s modern infrastructure and ambitious high-tech plans), but delivers preciously few real benefits to its people. Chinese state-owned enterprises have thrived because of their access to practically free capital, but their efficiency remains abysmal compared with domestic private firms or their Western rivals.

No country can keep pouring unlimited amounts of capital into unproductive infrastructure projects. China doesn't have the ability to keep blowing this current bubble and then dismissing colossal financial losses when the bills come due.  With Europe sinking into recession, America limping along, and much of the emerging market turning negative, there is little reason to believe they can pull the same rabbit out of the hat again.

Spanish society in freefall...

Spain currently has a mass unemployment rate of 24.1% and youth unemployment rate (15-24 y/o) that exceeds 50%, up from 18.2% in 2007.  In comparison Italy's youth unemployment is 29%; Portugal is 30%; and 24% of young people in France are without employment.  The Spanish economy has been contracting each of the past two quarters and is officially back in recession.  As the financial sector attempts to wade through the morass of over-development, massive consolidation of the banks and the crippling of credit has occurred.

The root cause of much of this disaster lies in the corrupt nexus between local bankers and regional politicians, which happen in many instances to be one and the same.  Lax lending standards, cheap foreign labor, and easy inflows of European capital all lead to a massive over-development.  The days of cheap credit ended with the financial crash of 2008.  Private debt was absorbed by the balance sheets of the state and ultimately the collective nations of the Eurozone.

Whereas the chicanery that lead to this bloody mess is a story that needs to be told, I'm interested today in discussing the impact on real people and the current generation of people who will have to pay for this economic catastrophe for the rest of their lives.  The decline and hopelessness felt across Spain has been chronicled in a number of newspapers and journals.  Here are some of the highlights.

In the Spanish daily La Pais, a 9-March article titled Generation Nimileuristra described the lives of young people who see opportunities denied and their lives stagnating with either low or no paying jobs.  

In 2005 youth unemployment was about 20%. Now [reaching] 50% while doubling the European average (22.4%) . The best educated generation has the worst outlook since the transition and feels a victim of the excesses of others...

In Spain there are 10,423,798 people between 18 and 34... Their average net income (including the unemployed), is 824 euros per month. And those who are working earn on average 1,318 euros a month (data from the Youth Council of Spain)...  Professions that seemed safe... are not. The Polytechnic University of Valencia followed the first steps in the process of engineers and architects who graduated in 2008: one in four did not reach [jobs with salaries over 1000 euros/month]. And what is worse: the [educated with jobs with salaries under 1000 euros/month] had advanced by 8% compared to graduates a year earlier.

In many cases youth are forced to abandon independence and relocate into their family's homes.

It has been established that even small levels of protracted unemployment in developed countries can have serious implications for the unemployed.  Those include reduced lifetime wages, reduced employment opportunities, and higher mental health issues.  With respect to society at large, depressed wages will promote educated youth emigrate to other jurisdictions, resulting in a brain-drain to the nation.  Undereducated and unemployed male youth on the other hand are statistically more likely to participate in criminal activity.

In many OECD countries the unemployment rate is substantially higher than the general population. An Economist article from Sept-11, 2011 discusses the various disadvantages and impacts under-employment and unemployment will have on these people.

Unemployment of all sorts is linked with a level of unhappiness that cannot simply be explained by low income. It is also linked to lower life expectancy, higher chances of a heart attack in later life, and suicide. A study of Pennsylvania workers who lost jobs in the 1970s and 1980s found that the effect of unemployment on life expectancy is greater for young workers than for old. Workers who joined the American labour force during the Great Depression suffered from a persistent lack of confidence and ambition for decades.

The implications of this situation are severe.  Not only will youth not be entering the work force, they will not be participating in the economy and doing normal things, such as buying cars, homes, furniture. So there is a negative cascade felt across the nation on all levels. Secondly, since they will not be paying taxes, who will bear the burden of maintaining the welfare state that Europeans are so proud of?   As fewer people are contributing to these pay-as-you-go programs, older generations will see a reduction in benefits.

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The financial crisis has lead to governments across Spain to drastically cut programs, services, and cash transfers to lower levels.  A New York Times article elaborates:

Just as Spain’s national and regional governments are struggling with the collapse of the construction industry, overspending on huge capital projects and a pileup of unpaid bills, the same problems afflict many of its small towns.

One town's mayor discusses his small community's problems:

“We lived beyond our means,” Mr. García said. “We invested in public works that weren’t sensible. We are in technical bankruptcy.” Even some money from the European Union that was supposed to be used for routine operating expenses and last until 2013 has already been spent, he said.

The banking upheavals have brought similar troubles to small and medium scale businesses, which represent "60 percent of the economy, and 80 percent of the jobs".  The vicious cycle has resulted in the shuttering of more than 500,000 small business according to the NY Times.  

“The cuts in credit have been so abrupt that some businesses not only lost specific projects they were working on,” said Carlos Ruiz Fonseca, the director of economy and innovation at Cepyme, Spain’s association of small and medium-size companies. “Some companies have just gone out of business.” 

How is any of this supposed to engender confidence in the international markets?  The same banks which are cutting credit lines, reducing exposure to risk, and contracting their businesses are simultaneously being downgraded by the various credit agencies.  Billions of Euros are being requested by the financial sector to keep these debt ridden entities from further collapsing and imploding the entire Spanish economy.

The net result of all these events is a society that is in freefall.  If these trends continue, not only will Europe have generated legions of angry, unemployed persons, they will have created the same foundations that gave rise to the extremists of the last century.

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Update: video link about squatters taking over an vacant apartment complex, built during the construction boom, in Seville

Roubini says double-dip too!

On the other hand, Paul Krugman isn't talking about double-dips, but a decade long depression.

I've got an expanded blog article titled "Recession Watch: one dip, two dips, ... we all fall down", which includes current macroeconomic data on America's descent into recession and opinions on what this all means by Krugman, Roubini, Joe Stiglitz, and Ken Rogoff.

None of this should be a surprise to those paying attention, but I suspect most people -as usual- aren't.

Quote of the day: Krugman on the coming storm

The austerians have brought us to the brink of a vast disaster. A recession in Europe looks more likely than not; and the question for the United States is not whether a lost decade is possible, but whether there is any plausible way to avoid one.

- Paul Krugman, "Defeatism"

Recession Watch: one dip, two dips,... we all fall down

The trend lines are undeniable; the US economy is heading into another recession.  Debate between economic analysts entail whether what is occurring is an entirely new recession, a double-dip recession, or the continuation of even larger economic contraction that began initially with the 2008 financial crisis (which some would argue is an extension of the 2001 recession) and has properties that are unlike previous recessions.  Each of these arguments have some validity in explaining the current situation, but all conclude that this new decline, while not likely to be as severe as the 2008 crisis, will last longer in duration and given the current political weaknesses of the major industrial nations, be more difficult to mitigate.

Leaving aside the debt crisis and economic malaise that is occurring in Europe for the moment or the possible hard landing that has been predicted about China and the entailing risks these situations pose to the global economy, America's economic position is clearly weak.

First, the jobs position is dismal.  Last month, zero jobs were added and only a fraction of the jobs necessary to compensate for population growth alone have been achieved in the previous four months.  The NY Times summarizes:

Over the last 50 years, every time that job growth has been as meager as it has been over the last four months, the economy has been headed toward recession, in a recession or in the immediate aftermath of one.

The collapse of job creation is not about businesses fearing regulatory uncertainty, creeping hyper-inflation, or the need for further tax-cuts to stimulate big businesses already bloated corporate coffers, but rather it is due to insufficient aggregate demand.  People without jobs, people forced to take inferior paying jobs, people concerned that they may lose their jobs, people forced to subsidize their spouse, adult children, parents, and/or relatives, and people loaded with debt, aren't engaged in making major purchases, because they can't afford to.  Consider the following:

But the latest indicators suggest that even if the economy does not continue to worsen, it appears to be too weak to add enough jobs each month — roughly 125,000 — even to keep pace with population growth. Anything less, and the share of the population that is employed will continue to fall.

The stimulus program offered by Mr. Obama was insufficient to meet the full demands of the  financial crash of 2008.  This blog has been saying for the past three years (here, here, and here) that the weak recovery was an illusion.  Joseph Stiglitz said back in 2009 that, "We need a larger and better designed stimulus."  Paul Krugman has been waging a public policy crusade to convince the public that a second more robust stimulus is needed.  President Obama, instead of listening to these and similar minded economists, decided to split the difference and offer everyone a little of what they wanted: a little bit of tax cuts and some stimulus over a couple years.  The problem was that while averting a more severe recession, it failed to create enough power to re-inflate the economy to pre-recessionary levels.  Now that the stimulus dollars have been used, the economy is drifting back into negative territory and with a recalcitrant Republican dominated House of Representatives, there is virtually no chance that anything of substance being passed.

Other indicators such as GDP, consumer confidence, consumer consumption, factory employment diffusion index, and housing are all trending downwards.  Volatility in the market place, with abundant talk of debt crises across the western hemisphere, has investors and business worried.  Last month Asian banks cut credit lines to French banks.  Central banks across Europe, Japan, and America have made the unexpected move to offer dollars to European banks to ensure liquidity.

What had been in 2008 a financial crisis has migrated into a sovereign debt crisis.  Nouriel Roubini expands:

We are running out of policy bullets. The policymakers don't have monetary bullets; they don't have fiscal bullets; they cannot even backstop their own financial system. That's why it's more scary than a year ago, two years ago, or three years ago -- when we had all these policy bullets. Now we are running out of them.

***

Ken Rogoff, Harvard professor and former chief economist at the IMF, has said, "the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation."  As a result, Rogoff points out that many policy makers have badly misunderstood the overall problems associated with this second great contraction, as he puts it.  He offers the suggestion that, "If governments that retain strong credit ratings are to spend scarce resources effectively, the most effective approach is to catalyze debt workouts and reductions."

Solutions to both individual and national debt problems should be addressed as follows:

For example, governments could facilitate the write-down of mortgages in exchange for a share of any future home-price appreciation. An analogous approach can be done for countries.  For example, rich countries’ voters in Europe could perhaps be persuaded to engage in a much larger bailout for Greece (one that is actually big enough to work), in exchange for higher payments in ten to fifteen years if Greek growth outperforms.

Another approach offered by Rogoff to reduce the painful deleveraging process and years of unnecessary slow growth, would be for central banks to pursue a policy of moderate inflation of 4-6% for several years.

At this stage, none of the policies suggested by Stiglitz, Krugman, Roubini, or Rogoff appear on the table in either Washington DC or the capitals of Europe.  Instead of sustained and ambitious solutions, we are left with blathering idiots telling us of austerity programs that will magically generate confidence, while keeping away the terrible bond vigilantes.  The incompetence and stupidity of our leaders is nearly blinding.

Please Mind the Gap!

The above chart culled from a posting at Kevin Drum's MotherJones blog, illustrates what has been discussed substantially since the inception of the 2008 global financial meltdown, but has not been widely understood amongst the general population.  If growth averages at or below 2% for the remainder of the decade, unemployment will remain nearly twice at which it was during the 1990's and much of the 2000's.  Similar to Japan's continuing economic malaise, America appears to entering a period of turbulence in which as much as 10-years of marginal or no economic growth will occur.

Both Harvard's Ken Rogoff and Yale's Robert Shiller have also discussed the likelihood that neither America nor much of the Industrialized world will return to pre-recessionary growth levels within the short term.  Based on Rogoff and Carmen Reinhart's 2009 research on economic crisis's over the past 800-years, they state that a "slow, protracted recovery with sustained high unemployment is the norm in the aftermath of a deep financial crisis."  Given the weak stimulus package introduced by the Obama administration and the ascent of austerity economics amongst many European nations, there is no reasonable chance that on either side of the Atlantic unemployment will reside, economic output will markedly increase, or that the fiscal situation will improve by 2012.

Shiller notes that in Rogoff and Reinhart's examination, the following rates are derivable:

median annual growth rates of real per capita GDP for advanced countries were one percentage point lower in the decade following a crisis, while median unemployment rates were five percentage points higher.

With the introduction of further uncertainty, whether through China's economy crashing or other yet to be determined causes, the world is faced with grim economic prospects for the foreseeable future.

The Dismal Science Redefined

Current economic theory is less a science than an ideology peculiar to a certain period of history, which may well be nearing an end...

[Economists are] the jilted lovers of the science world – the more rigidly they approach their subject, the more it mocks them with spurious and headstrong behaviour.

Since this blog started, I've been constantly commenting on the dearth of empirical evidence that lies behind many of the attributed economic theories of our time and the persistent irrationality, if not complete fraud, of proponents of modern economics.  Many noted persons who are economists, like Paul Krugman and J. Brad DeLong, have likewise stated how the field has become a self-serving entity, that is in many cases polluted beyond the point of usefulness.  The above quotes, culled from a Globe and Mail newspaper opinion piece by Brian Milner titled "Economists and their fairy tale world of prognostication," is another indictment of the dismal science's ability to actually be a science.  The central basis of any science is its ability to factually explain natural phenomenon, testability of theories, reproducibility of experiments, and its ability to predict future events.  Economics, or at least that set of dogma pedalled in the MSM, doesn't pass any of the above criteria. 

If economists want their profession be taken seriously, then they should start actually calling out those on their side who have perennially gotten it wrong and banish them.

The entire fable of sustainable capitalism is disintegrating all around us like the dreamscape in the movie Inception.  The communists of China, through their mercantile and corrupt practices, are acquiring natural resources across the globe and buying friends everywhere.  The new globalization that peaked in the last decade is slowly devolving.  The financial system that imploded in 2008, has only been patched together with band-aid remedies and awaits further paralysis in the near future.  China, Europe, and America are all betting against the odds, that growth will magically return and the masses will defer sharpening their pitchforks until another day.

You know It's a Depression When...

According to the blog the Big Picture, David Rosenberg, who as of recent has been prominently featured in front of the business news cameras, is talking down the US economy and firmly states that he is in the "we're in a long term Depression" camp.

Despite one of the largest fiscal and monetary stimulus packages in the history of the nation, the US economy remains moribund and appears to be drifting into deflationary territory, with potential increases in unemployment and greater economic upheavals (i.e. known as the double-dip).

The following statistics indicate that the US economy is in very poor health and worst is foreseen.

• Wages & Salaries are still down 3.7% from the prior peak
• Corporate profits are still down 20% from the peak
• Real GDP is still down 1.3% from the peak
• Industrial production is still down 7.2% from the peak
• Employment is still down 5.5% from the peak
• Retail sales are still down 4.5% from the peak
• Manufacturing orders are still down 22.1% from the peak
• Manufacturing shipments are still down 12.5% from the peak
• Exports are still down 9.2% from the peak
• Housing starts are still down 63.5% from the peak
• New home sales are still down 68.9% from the peak
• Existing home sales are still down 41.2% from the peak
• Non-residential construction is still down 35.7% from the peak

Given that autumn is approaching it is only fitting that our fleeting summer fling with conceptions of growth should come to and end and usher in the cold harsh reality that a return to the wonder-years of high growth are gone. The great deleveraging will continue for years. The global economy will continue to limp, stagger, and depending on what happens in China, may even collapse next year.

Quote of the Day: ECB Austerity Proponents are Dunces

The ECB’s arguments look to me like scraping the bottom of the intellectual barrel. The truth is that it is not fear of government bankruptcy, but governments’ determination to balance the books, that is reducing business confidence by lowering expectations of employment, incomes, and orders. The problem is not the hole in the budget; it is the hole in the economy.

- Robert Skidelsky, "Fixing the Right Hole", Project Syndicate

American Gothic

These images, by photographers of the Farm Security Administration/ Office of War Information, are some of the only color photographs taken of the effects of the Depression on America’s rural and small town populations. The photographs are the property of the Library of Congress and were included in a 2006 exhibit Bound for Glory: America in Color.

http://blogs.denverpost.com/captured/2010/07/26/captured-america-in-color-from-1939-1943/

 

 

Paul Krugman on our Current Depression

a significant proportion of the economics profession has spent the last three decades systematically destroying the hard-won knowledge of macroeconomics. It’s truly a new Dark Age, in which famous professors are reinventing errors refuted 70 years ago, and calling them insights.

- Paul Krugman

In the fall of 2007, I read Prof. Paul Krugman's NY Times column with great interest, because in it lay the seeds towards understanding our current calamity.  In it he inveighed against the recklessness of the Bush junta's tax policy and their pro-corporate policies that had boosted big business' bottom-line, but failed to produce any meaningful or sustained growth for ordinary citizens.  The dismal jobs report that emerged earlier that month, in which Krugman referenced, was a precursor to the worst economic turn-down since the Great Depression of 1929.

Likewise in today's NY Times op-ed he re-iterates -what should be obvious to all who never bought the original green-sprouts argument offered by the high-priests of commerce- is that "we’re looking at a lost decade."  He proclaims that given the misaligned interests of governments across the globe, that we are witnessing the solidification of the Third Great Depression of the modern era.

To quote:

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs will nonetheless be immense.

With the cumulative failures of modern finance and crony capitalism witness to all and the well anticipated onset of resource scarcity, climate change, and ecological collapse posed to overwhelm all nations, I'm quite confident that Malthusian arguments will dominate this last century of humanity.

Welcome to the beginning of the end...

Niall Ferguson: I've seen the future and it stinks!

Niall Ferguson gives an interview with business journalist Consuelo Mack of the PBS program 'WealthTrack'.  In it Ferguson does his standard song and dance about the origins of the strife between the USA and China or what he ofter refers to as Chi-merica.   He sternly admonishes those who feel that the current recession/depression is over and the classic 'V' shape recovery is occurring.   Paul Krugman, who has been having a public feud with Ferguson, addresses both topics in his NY Times column (respectively here and here).  In both cases, Ferguson and Krugman are basically on the same page in offering both concerns and veiled predictions of weak American economic performance in 2010.

The take home message in my opinion, which comes near the end of the interview, is Ferguson's comparison of the current 'depression' with of the depression of 1873.  This particular event, which is almost never referenced in the press, involved depressions emerging in both America and Europe.  In America, construction work lagged, wages were cut, real estate values fell and corporate profits vanished.  A total of 89 railroad companies went bankrupt, 18,000 businesses failed between 1873 and 1875, and unemployment reached 14% by 1876.  Whereas in Europe, the Vienna stock exchange crashed, Viennese banks failed, speculative bubbles collapsed, and industries crashed.  Deflation ensued for the next twenty years and an economic shift from Europe to America occurred.

In Ferguson's analysis, China plays the part which America played in the 1873 crash, in terms of the shift of industrial strength.  He also believes that like the populist backlash that emerged in the first Gilded age, current day populist rage across the Western world arising from severe unemployment, decreasing social amenities, and the realization of the corrupt financial/governmental systems, could pose substantial risk for standing governments.

The second message, despite his early preening in the interview about the rise of the emerging markets and especially China, is in his own words,  "I've been to Chongqing. I've seen the future and it stinks!"  He concludes that China's communist party is incapable of fundamental reform or eliminating the rampant corruption that underlies the fabric of its merchantalist society.  I have written a fair degree on China's corrupt business practices (here, here, and here for example) and believe likewise, that this facet of their culture will be one of the principle agents why the so-called Chinese miracle will not overtake the West.

Economics and The Great Recession

Economists across the world have been grinning from ear-to-ear saying the recession is nearly over, “we’ve past the worst,” and there are clear indicators of improvement. Arguments have been bandied about that tell the greedy and the absent minded that “green-shoots” are rising, the rate of job losses has declined, there are fewer surplus’ to be seen in manufacturing circles, and consumer sentiment has improved. While these arguments all have an element of truth, taken in context with actual events that have unfolded not merely in the past eighteen months but in the past two decades of globalization, a substantially different set of conclusions can be reached.

I’ve never trusted economists and their dismal science as a whole. One of the fundamental aspects of ‘real’ science, and not the statistical bloviations of financiers, is the concrete capacity to first, adequately explain a physical phenomenon and second, to accurately predict physical events before they occur based on the prior’s explanation. Let’s first review how they did leading up to this current recession:

1. Alan Greenspan former chairman of the US Federal Reserve (1987-2006) and an adherent of Ayn Rand, in March 2007 said he saw only a one third chance that a recession could occur that same year. The US recession officially began December 2007.

2. Greenspan’s successor, Ben Bernanke, stated in July 2007, only months before the beginning of the largest economic downturn since the Great Depression of 1929, he believed that despite a host of potential economic perils the US economy would pull through 2007 and into 2008 in relatively good shape. It did not.

3. Mark Perry, professor of economics at University of Michigan-Flint, stated in his popular economics weblog Carpe Diem in October 2007, “Economic variables identified by the NBER as the most important recessionary indicators… provide no support for the notion that the U.S. economy is headed for recession.” In fact he believed, “Most current economic indicators suggest a healthy economy, expanding at the average rate of an expansionary economy.” A year later stock markets across the planet crashed.

4. Martin Feldstein, a professor of economics at Harvard and the president of the National Bureau of Economic Research (NBER), stated in November 2007 in the NY Times that, “My judgment is that when we look back at December with the data released in 2008 we will conclude that the economy is not in recession now.”

5. April 2008, Alan Greenspan was given the opportunity to re-evaluate his previous stances and provided the eager public with another kernel of his vast sagacity in the belief that a decline in “U.S. home prices will probably end well before early [2009] as the number of houses on the market diminishes, aiding an economic rebound.” As of today, “US home prices fell 6.8 percent in April from a year earlier as rising unemployment and record foreclosures kept buyers out of the market.”

6. Greg Mankiw, a Harvard University economist and another Bush-bot adviser, recently stated in the NY Times, “It is fair to say that this crisis caught most economists flat-footed. In the eyes of some people, this forecasting failure is an indictment of the profession. But that is the wrong interpretation.” I’m sorry but this isn’t the Gong Show; you’re wrong again.

The above aren’t drama queen’s like Jim Cramer or for that matter anyone affiliated with CNBC. Rather, they supposedly are the best America has to offer in understanding economics and as such, were given pedestals in government and chairs in academia to pursue policies in the public interest. As the above summation reveals, none of them came close to accurately analyzing the existing trends or predicting the evolution of the current recession. If any person in ‘real’ science were to give such glaringly inaccurate and poor predictive analysis they would be fired and dismissed as dunces and crackpots.

In the past few months, the schemers, speculators, and accumulated greedheads, have been positing the argument that we are at the end of this so-called recession. Again, I think we need to re-evaluate the terms we are using. Richard Posner, a conservative jurist and author of a recently published book “A failure of capitalism,” has called this current situation a ‘depression’ due to,

The intensity of the anxiety that it has aroused, the enormous costs that the government has incurred to try to stop the downward spiral of the economy, the possibility that those costs will bite us as the economy begins to recover and by doing so will knock the recovery off its path, and the further possibility that the recovery will be extremely protracted because of long-term changes in consumer preference.

Let’s look at the outcome of the past six months for America:
1. The June 2009 US employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000
2. Unemployment has risen from 7.2% to 9.5%
3. Underemployment rate has risen from 14.8% to 16.8%
4. Aggregate number of hours worked per week has dropped precipitously
5. There has been more than 6 Million jobs lost since the start of the crisis
6. The DJIA remains 42% below its 2007 peak of 14,200
7. Personal savings of those with jobs has risen to 6.9%

The UK, the Eurozone, Japan, and all emerging markets are in worst shape than the USA. The UK output is expected to decline by 4.3% in 2009. The ECB announced in June that it expected Eurozone GDP to decline by as much as 5.1 percent this year. Eastern Europe is still a brewing concern with its capacity to further undermine major Western European economies and financial sectors. Japan faces historic levels of unemployment and continuous month-to-month declines in exports. The numbers offered by the Chinese simply don’t add up and their vaunted domestic middle-class population is not in any position to become uber-consumers. Unlike previous recessions and regionalized meltdowns, the rancid fruit borne by the collusion of national governments and international finance industries now encumbers the entire globe and all industries.

Despite these obvious facts, the OECD has declared “green sprouts” are rearing, the worst is behind us all, and in 2010 the 30-country organization will see 0.7% growth. The IMF, as of yesterday, boosted its 2010 global growth forecast to 2.5 per cent. Ben Bernanke back in February assured congress that, “there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.” Given the track record of these “experts,” does anyone really believe them?

Nouriel Roubini, one of the few economists who got it right, has stated that the U.S. recession will last at least two years and could drag on as long as the one that plagued Japan in the 1990s. Joseph Stigiltz who has done an excellent job of analyzing the roots of this current calamity states the little spoken but obvious fact:

So the real risk, I think, is that things will be even worse [than] before the crisis. The reason I say that is the way that we have gone about rescuing the banks and restructuring our financial sector has resulted in the too-big-to-fail banks becoming even bigger.

The best argument I have discerned is that there will not be a sustained recovery or minmally a return to the previous norm! One has to consider the fact that we have seen a fundamental and systemic failure of capitalism across the globe and neither the American nor any other nation’s economy will simply revert to “business-as-usual.” For the past decade, the American consumer, who represents 70% of the US economy, was sopping up an inordinate level of consumables from China, Japan, and the rest of the world. They built it and the Yanks bought it. Now that has stopped.

Americans are losing their jobs at record levels, they are seeing whole domestic industries disintegrate with no chance of those jobs returning, health care costs are increasing, and the value of their homes are collapsing. US Housing prices as of April 2009, have witnessed an 18% year-over-year drop and a reduction of 32.6% from their peak three years ago (S&P/Case-Shiller index). Currently, ten percent of homeowners have mortgages that are valued more than their homes are actually worth. Foreclosures increased 18% in May 2009 and thus remain unabated. The US banking industry, on the other hand, has an additional $1.8-trillion exposure to commercial real estate and faces potential losses of approximately $200-billion. The implication is that commercial real estate, "Is headed for a crash that could eclipse even the devastating slump of the early 1990s." The American consumer has wisely started to save again; however, this new propensity towards frugality during a severe recession reduces the likelihood that a recovery will occur anytime soon or can be maintained.

Robert Reich states, “This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.” Therefore, the growth and consumption that occurred during the roaring nineties and the dismal decade of the zeroes will not be repeated. A new equilibrium will have to be established with diminished expectations, reduced (if any) growth rates, and an end to the culture of excess that has permeated government, business, and individual want.

As John Connor says in Terminator Salvation, "If we stay the course, we are dead! We are all dead!"