Slow ‘Recovery,’ Dire Consequences
In December 2009, an Associated Press headline told us that the top business story of the year was “Recovery From Great Recession.” Readers of its text were informed that the previous year had seen the “Economy’s Fall — And Rebound.”
Twenty-six months later, the question I asked in response still resonates: “Rebound? What rebound?” Even though the American press has mostly pretended that they don’t exist, the unforgivable length of the post-recession malaise has caused an unprecedented growth in problems not seen since decades before most Americans were born.
If you’re looking for “good” news, the following sentence represents its full extent. For the first time in the ten quarters since the recession officially ended in June 2009, the private sector’s gross domestic product (GDP) was larger than it was at its pre-recession peak, whether you define the recession’s beginning the way normal people do (two or more consecutive quarters of contraction, in this case beginning with the third quarter of 2008) or as the academics at the National Bureau of Economic Research whimsically determined it (December 2007):
That’s nice, but as seen at the right in an updated version of a graphic originally posted at Investor’s Business Daily last year, even the overall recovery in GDP (including the government sector) which occurred during the third quarter of last year took three times as long as any recovery from any downturn since World War II.
Demonstrating that he may need to employ a ghostwriter to compose his personal correspondence in order to prevent him from going off-message, President Barack Obama informed a Maine constituent in June of last year that “it will probably take another year or two to fully dig our way out of this hole.”
This demonstrates that despite the public posturing, Obama knows full well that this nation hasn’t attained an economic recovery, and is in fact far from it.
Other benchmarks indicate how bad things really are, starting with per capita GDP. By Obama buddy Warren Buffett’s reckoning in September 2010, before the Oracle of Omaha decided to become the full-time Klingon of class warfare, we were still in a recession, and would stay in one “until real per capita GDP gets back to where it was before.” We’re probably at least a year from that threshold:
Thus, we will have endured a half-decade of Buffett-defined recession.
The other major indicator that we have had a failure to recover is shown in the jobs numbers — not the ones relating to the overall picture, which are bad enough, but the ones breaking down part-time versus full-time employment. The following chart shows what has happened in those categories since what I have been calling the POR (Pelosi-Obama-Reid) Economy began at roughly May’s end in 2008. This was the point when decision-making investors, entrepreneurs, and businesspeople began running for cover as the ominous prospect that Obama might actually win the presidency and have a lapdog House speaker and Senate majority leader at his beck and call became a likelihood:
On the current trajectory, while Obama and his administration brag about the wonders they’ve supposedly achieved in the employment growth since early 2010, the economy is at least four years away from recovering the full-time jobs lost since the POR Economy began, even before considering population growth. If ObamaCare somehow survives Supreme Court challenges and congressional repeal efforts, we may see full-time employment plateau barely above where it is now.
The slow non-recovery is having dire consequences which will be felt for years. The establishment press, which fabricated the fiction that the truly roaring economy under Ronald Reagan in the 1980s was supposedly creating jobs for hamburger flippers and not much else, is virtually ignoring the frightening human cost of the worst economy since FDR dragged the country through the needlessly long-lasting depression of the 1930s. Instead, they play a colossally fraudulent game of “Let’s pretend things are just fine” with the Obama economy.
In mid-February, there was a press report about “tent cities.” No, not those erected by the pathetic losers and criminal trespassers of the Obama-endorsed Occupy movement, but places where one will find the desperately poor:
Tent cities have sprung up in and around at least 55 American cities — they represent the bleak reality of America’s poverty crisis.
… One of the largest tented camps is in Florida and is now home to around 300 people. Others have sprung up in New Jersey and Portland.
The media outlet which reported this phenomenon clearly broke ranks with the predominant press indifference. There’s a high likelihood that you never heard a word about this report, because it came from the BBC. Does anyone think that the U.S. media, which is so completely vested in Obama’s reelection that it might as well be an arm of Obama for America, is going to cover the tent city phenomenon and risk seeing them referred to as they should be, i.e., as “Obamavilles,” the 21st century incarnation of the Depression-era Hoovervilles?
Homeless advocacy groups have also gotten into the cover-up act, as illustrated in this paragraph from the 2012 The State of Homelessness in America report:
Chronic homelessness decreased by 3 percent from 110,911 in 2009 to 107,148 in 2011. The chronically homeless population has decreased by 13 percent since 2007. The decrease is associated with an increase in the number of permanent supportive housing beds from 188,636 in 2007 to 266,968 in 2011. Permanent supportive housing ends chronic homelessness.
Clever, eh? You wouldn’t know it from the excerpted paragraph, but “permanent supportive housing” is still a form of homelessness. Digging into the report to find comparable numbers, one finds that both kinds of homelessness combined have increased by over 9% during the past two years. What’s more, “The ‘doubled up’ population (people who live with friends, family or other nonrelatives for economic reasons) increased by 13 percent from 6 million in 2009 to 6.8 million in 2010.”
Meanwhile, millions of the long-term unemployed are seeing the skills which earned them middle-class standards of living dangerously erode in what is perhaps the greatest destruction of human capital this nation has ever seen. That doesn’t seem to be a problem to Obama adviser Valerie Jarrett, who positively gushes over how government unemployment checks stimulate the economy.
A slowly recovering economy means that real estate values, which declined steeply during the downturn, are just staying there. If it weren’t for the administration’s failed housing market interventions, the homebuilding and resale industries, instead of treading water near their bottom, would be coming back quickly enough to justify a meaningful rebound in home values. That’s not happening, and it’s seriously harming the financial positions of millions of individuals and families.
A president with the gall to brag about the set of conditions just described and who wants us to believe, with press assistance, that this is the “new normal,” it’s the best we can hope for, and that we’d better get used to it, is one who deserves to be electorally thrown out of office on his insecure, oversized ears.
Unfortunately, the type of economic downturn we’re experiencing right now can’t be fixed with *either* Obama’s nostrums *or* anything the GOP candidates have proposed.
The reason is that this was NOT a typical cyclical downturn that can be dealt with by either Keynesian economics or Reaganomics. (Sorry, what worked for Reagan in 1981 will NOT work now.)
Rather, the current mess was caused by a financial collapse of highly overleveraged and illiquid assets (real estate in our case). And until that enormous debt overhang is worked off, the economy will continue to sputter because of the negative “wealth effect”: An amazing 25% of all the homeowners in America have been made upside-down on their mortgages. Their consumer spending has dropped sharply, and that’s why the economy sputters. A homeowner facing bankruptcy or foreclosure due to being upside-down on his mortgage isn’t going to be purchasing any more big-ticket items on credit, even if he could get credit which is unlikely.
Here’s a chart that compares the American financial collapse to similar financial collapses in other countries.
http://i40.tinypic.com/29zee5j.jpg
Despite differing economic policies, ALL these countries ended up with prolonged slumps that lasted and lasted for years, despite all the nostrums economists cooked up.
And here in the U.S., we had one of those in the 19th century too: The financial collapse of the 1870s, precipitated by the collapse of the inflated dollars to pay for the Civil War and for the bursting of the speculative bubble in the huge land grants given to the Transcontinental Railroad and for other purposes. The result was a major depression–and an economy that underperformed for *twenty years*. Full recovery didn’t happen till the 1890s. (So much for the theory that a freer economy without an FDR-style welfare state would recover quickly. We had a much smaller government in the 1870s than we have now. But economic recovery didn’t happen.)
The ONLY real way to fix such an economic collapse quickly is for the Government to take emergency steps to buy up all that debt. The problem for us is that TARP bought up the debt of financial speculators, but not the mortgages of homeowners facing bankruptcy and foreclosure.
Bailing out the big league financial speculators was a mistake which only prolonged the current financial mess. Ditto with all the programs to bail out the minor league players. All this produces, in the medium to long term, is a big jump in inflation. Add to this the fact that 47% to 49% of income earning households do not pay net Federal income taxes and it become difficult to see any way out other than a Weimar Republic sort of implosion.
Perhaps the general salary level will increase, but it is unlikely to keep up with inflation. On the other hand, the apparent value of one’s home will go up and most people who survive for three to five more years will no longer be “underwater.” Of course, the purchasing power of their dollars will be 25 to 50% less than those dollars are worth today. Back in 1955 when one could get a 20 year mortgage on a house for 3% interest, the house probably cost $45,000 or less and the buyer put down 20%. You could buy a new Ford or Chevy for $2000. Gold was still $35/oz., but it was illegal for you to own or buy it.
So, 57 years later, discounting the enormous improvement in technology, are we economically very much better off?
That is, in fact, what liberals like Paul Krugman have been proposing: Massive reflation as in World War II, so that inflation will reduce the value of the dollar and cause dollar-denominated debt to shrink in real terms. (Once the average American income is $500,000 and a new car costs $400,000 and gasoline costs $30 per gallon and gold is $25,000 per ounce, all that existing mortgage debt will be “relatively small” and easy to pay off.)
Back in World War II, this massive inflation was threatening to get out of control–so FDR countered it with wage-and-price controls. And when that caused shortages of consumer goods, FDR countered that with rationing: You couldn’t buy gasoline without a ration coupon. You couldn’t buy tires without a ration coupon. You couldn’t buy clothing without a ration coupon. Etc.
Obviously that kind of draconian program could never be accepted today.
So whoever is President in the next 4 years–Obama or Romney or Santorum or Gingrich–America will continue to tread water with slow growth and relatively high unemployment. Until banks renegotiate much of that toxic mortgage debt, or homeowners find buyers for their homes willing to pay enough that the homeowners can pay off their upside-down mortgages.
I don’t expect we’ll get back to full employment before 2017 or 2018. No matter who wins the election.
The extended recession was caused by Obama and his policies. He has attacked small business through his taxing and regulating. We are reaping what he sowed not what is “normal”. This is “normal” for Socialist Europe. I guess that is what you want for the United States.
The ONLY real way to fix such an economic collapse quickly is for the Government to take emergency steps to buy up all that debt.
Translation: You lost money on your house. I’m sorry but I don’t think the Chinese will lend us the money to make you whole. Your solution is no solution. It helps you, and others who made a poor investment decision, but it hurts everybody else who chose not to participate in the madness. Ultimately, it rewards failure and penalizes success. And it adds even more debt that we can’t repay.
Nope. I’m sorry but the only real solution is to allow the market to correct. One main reason it hasn’t has been the continual governmental interventions intended to prevent those who suffered losses from suffering those losses. Again, I’m sorry you lost money on your house but having me lose money on your house as well doesn’t increase the net pool of money available to be spent. You’re just going to have to eat the loss. Maybe in 20 years your house will have restored enough value for you to break even.
+1
Mark,I’m not “redefining words”. You are.I AM?! I pointed out that the NBER olflciaify declared that the recession began in December. You then insisted that the NBER is wrong because the recession doesn’t meet the definition of a recession that you heard. So I’ve got the NBER on my side, and you’re arguing technicalities without basis. Even if you were right that it wasn’t technically a recession and you aren’t it still wouldn’t undermine my point that the WSJ and right-wing media were completely wrong about the economy. Remember, the title of the WSJ article I was making fun of was The Economy Is Fine (Really.) It was 100% wrong, just as practically all economists were saying at the time, just as a majority of Americans believed at the time, and just as the mainstream media were saying at the time.And you, characteristically, completely ignore the bigger picture and try to nitpick your way out of it.
Correction: I said above that “having me lose money on your house as well doesn’t increase the net pool of money available to be spent.”
It, in fact, reduces the net pool because those with assets will take steps to protect them from the thieving horde. Even if I have no substantial assets to protect, making me liable for your loses reduces the amount that I’ll spend because I would then have zero confidence in my future financial prospects. The economy runs on confidence, if you think the future is bright then you spend; if you think the future is dark then you horde; if the future is murky then you spend very sparingly. Currently the forecast for the future is murky to dark.
Losing money on a house is nothing new and isn’t grounds for government action. Back in 1985, my wife and I bought our first home for $79,000. Little did we know that the bottom was about to fall out of the local market. A little over a year later, our home was worth $10K less than the balance on our mortgage. When it came time for a military reassignment in 1989, I couldn’t afford to pay someone $10K to take the house off our hands. Instead, I volunteered for a “remote” assignment (and the Aleutians is pretty damned remote) with a guaranteed follow-on back to the local area. By 1993, the local market had turned around and we sold the house without losing anything.
This too shall pass but it’ll only take longer if the government keeps artifically trying to prop up home prices. Sure, some people will lose money but for many others, housing is a lot more affordable. It would help if people were more realistic about housing. A house is a place to live. It shouldn’t be viewed as an investment vehicle nor a lifestyle statement. Forgo the fluff like granite countertops and stainless steel appliances until you can afford them and then ask yourself if you really need them. My wife likes to watch “home improvement porn” and shows about first time homebuyers. It’s amazing how unrealist so many people are when buying a home. What do you really need as opposed to want? Answer that wisely and you’ll be a lot less likely to buy something you can’t afford. Also, just because your family might qualify for a certain mortgage, it doesn’t mean you should buy the most expensive house you can. What can you actually afford? What happens if one of you gets sick or injured and can no longer work? What happens if one of you loses your job? If you’re maxed out on your house payments when times are relatively good, you’ll very quickly be in trouble should something unfortunate happen.
Plus 2.
How quickly we forget the S&L Crisis. People bought homes with fraudulent collateral and fictitious earnings. The “homeowners” knew they didn’t own the homes, and they also knew they were playing the inflating real estate game. When the game ended they quietly put their keys on the kitchen table and called the bank to let them know they had walked away. They were embarrassed, but not indignant and demanding that the taxpayers owed them a home they could not afford in the first place.
The gov’t stepped in, closed S&Ls that had accepted the bogus documents, sent a few bank miscreants to jail, and created the RTC to dispose of underwater properties. The gov’t then allowed the “more” stable banks to re-inflate their balance sheets by loaning money at much higher rates than they were receiving for passbook savings and checking accounts. Consumers who did not get in over their head were hurt by the higher lending rates and the lower interest rates on their savings, but they were not expected to bail out real estate speculators and over leveraged homeowners. That would have been considered a transfer of wealth from taxpayers and savers who did “the right thing” to people who did the wrong thing. My how times have changed.
That’s one theory of this recession, the one that liberals favor. It wasn’t their fault – this is a “different” kind of recession. The other theory is that a recession is a recession is a recession. That regardless of how it starts, once you enter a recession the same economic forces are at work. Housing is always affected by recession – in this case housing was also causal. And let’s not forget that the GOP did have a plan at the time the Dems passed the stimulus; half the cost and, according to White House economic models, twice the job creation.
You really must expect that people won’t try to verify your claims.
You wrote:
The result was a major depression–and an economy that underperformed for *twenty years*. Full recovery didn’t happen till the 1890s.
That’s funny, Wikipedia (I know, not the greatest of sources, but I wanted to limit the time I spent your dim comment):
The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.
So tell me: Exactly where are those 20 years of underperformance hiding? (Hint: There’s a per capita GDP graph at the Wiki link, and you won’t find any such time period. The most I see is a rough stretch of about 6 years during the 1880s.)
What we have here would appear to be an honest-to-goodness example of an ignorant or deliberately disinformation-disseminating Obamabot troll.
Comparing socialist countries to ours is a waste of time. Are you going to go in to those studies and chang all the hundreds of factors that we have-they don’t, what they have and we don’t. The american economy and its ability to generate wealth is fairly unique.
Either bail every home owner out-or none at all. I am dying here (I will lose my house soon) but my mortgage is not through freddy or fannie; how is that equal treatment under the law.
Go to a flat 9-9-9 (no deductions except charity) for 4 years and see what happens. Hell I am willing to give anything a shot except government spending.
“A president with the gall to brag about the set of conditions just described and who wants us to believe, with press assistance, that this is the “new normal,” it’s the best we can hope for, and that we’d better get used to it, is one who deserves to be electorally thrown out of office on his insecure, oversized ears.”
This is Obama’s plan in turning America into a European style welfare state. Get used to the “new normal,” just like in France, where a stagnant economy, chronically high unemployment, very, very, high taxes, and very expensive social welfare benefits are the new normal. And let’s not mention the European desire for a very small armed forces that is barely capable of defending their own country. Yup, this is what Obama is trying to achieve and, if he gets four more years in office, he just may get it. Of course, it would also mean the end of America as we know it. So if you want to take a look at what our future is going to look like, just take a look at Greece and say, “I was there when we decided to let that happen to us.” Pretty scary stuff.
The government doesn’t need to “fix” anything. We are completely capable of “fixing” things ourselves. All they need to do is GET OUT OF THE WAY!
Obama said, “It’s gonna take another year or two to dig ourselves outta this hole were in.” Sorry to point this out Mr. President but you can’t DIG your way out of a hole. Digging only gets you in deeper!
To make matters worse, there will be huge tax and fee increases in 2013; that should really kick th economy to the curb. I recently saw a short piece on the Rahn curve, and I wonder why the GOP doesn’t exploit this in their campaigning.
They do, but those are never the bits that get shown on the news. You likely won’t see them in campaign ads until after a Republican nominee is chosen either, unfortunately.
So far nobody admits or knows how to correct America’s successful economy. One thing, America needs to being in MONEY, you do this by SELLING, products, agriculture, resources, minerals,manufacturing, Until America recognizes and admits it must WORK and make products for sale to other factions that have money, NO improvement. Your phony, funny money banking, markets and interest income, and phony investment profits actually help no one and produce NOTHING. Your playing with inflation and other PHRASES produce NOTHING. Just a start.
They keep trying to “Hide the Decline”.
Good call on outing the lying Obama troll Tom Blumer. Take him out in the sunlight and let his skin and boils fry off. There isn’t enough disinfectant for these ignorant hordes. The only truly prolonged American recession was caused by FDR’s stubborn adherence to penalizing capitalism and delusional, self absorbed, ego that wouldn’t let him stop repeating the same mistakes. He couldn’t quit even after getting data that he admitted proved that he was wrong. He had many chances to have shortened the depression into a bad recession, but doubled down every time on policies that he said himself were disproven. 20 years? really? Never seen it in America, but would be historically interested if there was a period.
I’ve seen that argument before. It’s like the walls have eyes and the government is right there to correct us immediately whenever there is something that doesn’t mirror their propaganda.
I knew what he was saying was total BS too, but I was too lazy to go through all the work you did. He’s probably pissed at Chester A Arthur wrecking the patronage system for sleazy liberal democrats.
I enjoy reading your articles and often enjoy reader comments that follow.
In trying to come to terms with what happened economically and what continues now, it seems to me that there is this rotten debt that is passed around from place to place like a game of hide the pea. (By rotten I mean debt that has a valuation far greater than its actual real worth.) Just because it has passed from private to government hands doesn’t mean it has disappeared. You can say, okay, it’s gone now!, but it is still somewhere and the effects will continue to affect until mitigated or accepted as the new normal. Accepting it as the new normal has consequences, regardless of any smiley face painted on it.
I am no economics guru, but azwayne in the above comments seems to me to have it right. You have to sell things, work hard, struggle to make it good, if you want someone to have it better some time in the future.
Thanks for the article and comments.
The Bush-Clinton-Shrub-Obummer economic depression contines with dire consequences… because nothing has been done to remove the distortions to the economy that have been legislated and regulated into place.
Secure the borders, cut student and guest-work and green card visas to manageable levels (how many can DHS really keep reasonable tabs on, after all), applying some minimal standards; restore tax breaks for costs of interviews, relocations and training and restrict them to those activities related to hiring and retaining US workers and most of the furor over that knot of issues will subside.
gch21 – The rotten debt is easy to find – it’s the subprime mortgages that are currently hidden with mark to unicorn accounting to hide the insolvency of ALL the TBTF banks (Yes, they are STILL insolvent, but don’t tell anyone, it’s a secret!) and the sovereign debt of the PIIGS, Japan and USA which has a real world value of ZERO as it will NEVER be repaid.
Sinz54 – The dollar will crap out into Obama/Zim bucks long before US$25,000 oz.
But imagine the prosperity a nation of multi-trillionaires will have. Krugman thinks it’s a fantastic idea and that’s the change Obama is working towards.
Argentina, Zimbabwe, Weimar, Change… 4 more years… Believe…